FRANKFURT (Reuters) – Wage growth in the euro zone accelerated slightly in the first quarter of 2024, according to figures published on Thursday by the European Central Bank (ECB), pleading for a certain prudence from the institution which is preparing to lower its rate.
Salaries in the euro zone increased by 4.69% in the first quarter after 4.45% in the previous three months, with employees continuing to negotiate upwards in order to compensate for losses in real income linked to inflation.
“Overall, wage growth is expected to remain high in 2024,” the ECB said in a paper published on Thursday. “However, wage pressures appear likely to decelerate in 2024.”
The institution highlighted that salaries for new hires are slowing, with the Indeed Salary Index decreasing to 3.4% in April, compared to a peak of 5.1% in October 2022.
Recent indicators also point to a moderation in wage demands during the second quarter.
The ECB forecasts an increase in remuneration of 4.5% in the euro zone this year, 3.6% in 2025 and 3.0% in 2026.
The ECB practically committed to easing its monetary policy in June, but this weaker than expected figure could prompt it to be cautious in its next decisions.
In fact, the restrictively biased (“hawks”) members of the Governing Council could rely on these figures to ward off further declines later in the year. Isabel Schnabel, Pierre Wunsch, Klaas Knot, Joachim Nagel and Martins Kazaks had notably suggested that a second rate cut in July could be premature.
“We do not expect the first quarter wage figures to prevent the ECB from cutting rates by 25 basis points in June, but we believe stronger wage growth reduces the likelihood of back-to-back cuts in July “, judges Diego Iscaro, economist at S&P Global Market Intelligence.
The ECB says nominal wage growth of 3% would be consistent with its 2% inflation target, with higher growth suggesting the existence of excessive wage pressures generating inflation.
However, the central bank also said workers deserved to be compensated for lost income and that a modest period of faster wage growth was acceptable, especially as corporate profit margins could absorb a much of this increase.
Some economists even believe that the disinflation process is running out of steam, which would call into question a rate cut in June.
“The dynamics of inflationary pressures in the euro zone are worrying (…) and the ECB certainly cannot be happy about it,” notes Piet Haines Christiansen, economist at Danske Bank.
“No country shows decreasing dynamics on a quarterly basis,” he adds.
(Report by Balazs Koranyi, French version Corentin Chappron, edited by Kate Entringer and Blandine Hénault)
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