By Mark Schroers
November 20, 2024
Commuters in La Defense, Paris.
Photographer: Zula Rabikowska/Bloomberg
(Bloomberg) -- A key gauge of euro-zone wages jumped by the most since the common currency was introduced in 1999 — complicating the European Central Bank’s plans for interest-rate cuts as inflation eases.
Third-quarter negotiated pay rose 5.4% from a year ago, the ECB said Wednesday. That’s up from 3.5% in the previous three months and was largely driven by Germany.
The data come less than four weeks before the ECB’s final policy meeting of the year, with officials tipped to lower the deposit rate for a fourth time. The surge in pay, however, could damp expectations among investors and analysts for a spate of rate reductions in 2025.
While most officials have signaled that more cuts are likely, particularly as the economy struggles to gain traction, the pace and extent is becoming increasingly controversial.
Some policymakers want rapid moves to underpin activity and avoid an inflation undershoot. Others urge prudence, mainly because of sticky price pressures in the services sector, where wage growth remains strong.
(Bloomberg) -- A key gauge of euro-zone wages jumped by the most since the common currency was introduced in 1999 — complicating the European Central Bank’s plans for interest-rate cuts as inflation eases.
Third-quarter negotiated pay rose 5.4% from a year ago, the ECB said Wednesday. That’s up from 3.5% in the previous three months and was largely driven by Germany.
The data come less than four weeks before the ECB’s final policy meeting of the year, with officials tipped to lower the deposit rate for a fourth time. The surge in pay, however, could damp expectations among investors and analysts for a spate of rate reductions in 2025.
While most officials have signaled that more cuts are likely, particularly as the economy struggles to gain traction, the pace and extent is becoming increasingly controversial.
Some policymakers want rapid moves to underpin activity and avoid an inflation undershoot. Others urge prudence, mainly because of sticky price pressures in the services sector, where wage growth remains strong.
What Bloomberg Economics Says...
“The sharp increase in negotiated wages for the euro area in 3Q24 will make for uncomfortable reading for the hawks on the Governing Council, but is unlikely to prevent the ECB from reducing rates again in December. Policymakers have already shifted their focus to more forward-looking indicators of pay growth and the broader inflation outlook is much less worrying.”
—David Powell, senior euro-area economist.
The ECB forecasts a sharp slowdown in pay increases in 2025 and 2026, helping to return inflation sustainably to the 2% target.
In Germany, negotiated wages, including ancillary agreements, rose 8.8% from a year ago in the third quarter — the quickest rate since 1993, the Bundesbank reported on Tuesday.
But it also said the period may have marked the peak for wage increases, so that pace is unlikely to last.
Last week’s IG Metall key settlement for the manufacturing sector already locked in relatively moderate pay growth for the next two years.
While the ECB’s inflation assumption is based on a slowdown in salaries, it also doesn’t want the labor market and advances in pay to moderate too much.
Chief Economist Philip Lane said in October that a more robust jobs market “increases the likelihood of hitting the inflation target rather than being chronically below,” and that “wage increases would be more target-consistent in the coming years” than pre-pandemic.
(Adds Bloomberg Economics.)
©2024 Bloomberg L.P.
No comments:
Post a Comment