The European Central Bank judged in December that the evolution of wages in the euro zone was still too uncertain to believe in a lasting decline in inflation, justifying leaving key rates unchanged, according to the minutes of the meeting published Thursday.
“Convincing evidence of a lasting reversal” in wage developments has “not yet appeared”, states the document. However, this is what would be “necessary to obtain sufficient confidence” in achieving the 2% inflation target, he added.
In December, the guardians of the euro extended the pause on rates decreed in October after ten increases in a row to combat high inflation in the eurozone and suggested that no further rises were expected.
A first relaxation in April?
But numerous risks weighing on inflation have been noted, notably the dynamics of wages which could further increase in the euro zone to compensate for the increase in prices, raising fears of the establishment of a price-wage spiral. ECB officials therefore considered it premature, in December, to debate a rate cut, while the markets expect a first easing in April.
In December, euro zone inflation accelerated slightly to 2.9%, after 2.4% in November, a jump that was widely anticipated. As unit labor costs rose at a “record pace of 6.6% in the third quarter” of 2023 amid labor shortages, outlook on wages deemed “essential” by central bankers to “understand medium-term inflationary pressures”.
According to ECB projections, growth in remuneration per employee, of 5.3% on average in 2023, should stand at around 4.5% in 2024, then at 3.8% in 2025. Enough to impose “to remain vigilant”, in other words to “maintain a restrictive position for a certain time”, according to the minutes.
Are things changing? While the next meeting of the ECB setting the monetary course in the euro zone will be held in a week, several members of the governing council recently spoke out on the possibility of lowering rates from the summer. “I would also say that it is probable,” ECB President Christine Lagarde said in Davos on Wednesday.
However, everything will depend on key economic data, in particular on the evolution of wages, which will not be available before the end of spring.
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