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ECB sees further signs of easing wage pressures

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September 25, 2024
in Stock
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ECB sees further signs of easing wage pressures

FRANKFURT (Reuters) – Wage pressures are easing across the euro zone, driven in great part by lower additional compensation paid on top of negotiated wages, likely contributing to a further moderation of inflation, a European Central Bank study argued on Wednesday.

Wage growth has been rapid for years, driven significantly by so-called “wage drift”, or actual payments made to employees on top on negotiated wages.

Wage drift has been driven by bonuses, inflation compensation payments and longer hours worked but most recent data show a closing gap between negotiated and actual payments, a likely sign that inflation pressures will ease as the ECB has long predicted.

“We are now at a point in the disinflation process where the upward pressure coming from wage drift is easing,” the ECB said in an Economic Bulletin article. “The recent moderation of the growth in compensation per employee has been driven by an easing of wage drift.”

Instead, it will be negotiated wage growth that will once again become the main indicator for the ECB but even there, signs of moderation are increasingly apparent.

Negotiated wage growth slowed to 3.5% in the second quarter from 4.8% three months earlier, hitting its lowest level since late 2022.

While this is still faster than the 3% considered consistent with the ECB’s 2% inflation target, the central bank hopes that a further slowdown will let price growth sink back to its target in late 2025.

Germany, the euro zone’s biggest economy, however, expects big wage increases well into 2025, raising some doubts about the ECB’s outlook.

“As inflation compensation is increasingly embedded in collective wage bargaining, high negotiated wage growth has been sustaining the current levels of growth in compensation per employee,” the ECB said.

“As the inflation surge has passed, there may be some residual real wage catch-up, but the upward pressure on negotiated wage growth is likely to subside,” the ECB added.

This post appeared first on investing.com
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