The ECB expects strong wage growth in the coming quarters, which means an increase in interest rates.
In mid-January, the ECB’s Governing Council is expected to meet to decide whether to raise interest rates to deal with inflation. At its previous meeting, the ECB lowered the rate of increase from 75 basis points to 50 basis points.
But regardless of interest rate policy and inflation control, the ECB expects that wage growth will pick up over the next few quarters, making the case even stronger for raising interest rates.
What does a study of salary trends show?
In an article published in the European Central Bank’s Economic Bulletin, a study of wage developments was reportedly prepared showing that underlying wage growth has been “relatively weak” and is currently close to its long-term trend.
However, “going forward, wage growth in the coming quarters is expected to be very strong compared to historical standards,” he notes, explaining that this estimate reflects “strong labor markets that have not yet been materially affected” by the slowdown. In economics, increasing the national minimum wage and “correcting” wages at high inflation rates.
Although inflation in the eurozone declined from its highest levels in previous months, the index which excludes volatile items such as food and energy reached an all-time high in December. In other words, the Harmonized Consumer Price Index fell to 9.2% in December, and core inflation rose to 5.2%. Last month.
Expect another hike in interest rates
According to information from Bloomberg and Christine Lagarde reported from time to time, another 50 basis point increase is expected at the February meeting to avoid changes between wages and interest rates.
Weak economic growth is unlikely to help much in the short term, especially as a shortage of skilled workers encourages companies to retain workers and pay them well.
It will take several years for wages to fully adjust to the recent crises, according to ECB chief economist Philip Lane, who has argued that monitoring wages will be an important part of understanding the trend in inflation.
In its document, the ECB states that “there are indications of stronger wage growth in service sectors,” particularly among those without employees. “Beyond the short term, the expected economic slowdown in the euro area and uncertainty about the economic outlook is likely to put downward pressure on wage growth,” the report adds.
