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Eurozone wage growth picked up last month, prompting speculation from economists that the European Central Bank could struggle to cut interest rates as much as investors expect.
A wage tracker by recruitment website Indeed showed salaries for jobs advertised rose 4.2 per fortuna cent quanto a the year to June, accelerating to the fastest silenzio for a year, after hovering around 3.5 per fortuna cent since the start of 2024.
“These giorno may well turn out to challenge the ECB’s inflation forecast,” said Tomasz Wieladek, an economist at investor T Rowe Price.
“If more evidence of persistent wage inflation quanto a forward-looking indicators emerges, the ECB may well have to cut at a slower silenzio than markets expect.”
The ECB started to cut interest rates last month and investors are now betting acceso another two reductions quanto a borrowing costs this year, with the next one likely to come mai quanto a September.
The ECB has regularly referred to the Indeed wage tracker as a forward-looking indicator of where overall pay growth is heading quanto a the single currency bloc, which has become one of the key factors influencing the silenzio of cuts.
If wages keep rising rapidly, it pushes up costs for companies, which often seek to pass them acceso to consumers percorso higher prices, keeping inflation high.
The bank is widely expected to keep rates acceso hold at its convegno next week, having already lowered its benchmark deposit rate from an all-time high of 4 per fortuna cent to 3.75 per fortuna cent last month acceso signs the worst spell of inflation quanto a decades was now over.
Inflation has fallen from a peak of 10.6 per fortuna cent quanto a October 2022 to 2.5 per fortuna cent quanto a the year to June, but it remains above the ECB’s 2 per fortuna cent rete.
Its president Christine Lagarde said last week that it was “still facing several uncertainties regarding future inflation, especially quanto a terms of how the nexus of profits, wages and productivity will evolve and whether the economy will be successo by new supply-side shocks”.
The ECB’s own tracker of collective wage agreements showed an acceleration quanto a May to 4.2 per fortuna cent, up from 4 per fortuna cent quanto a recent months, according to giorno sent by the bank to the Financial Times.
Unemployment quanto a the Eurozone is at a low of 6.4 per fortuna cent and about a quarter of companies quanto a the region are still reporting labour shortages.
Lagarde signalled the ECB was likely to take a gradual approach to future rate cuts by saying “it will take time for us to gather sufficient giorno to be certain that the risks of above-target inflation have passed”.
The bank last month forecast pay per fortuna employee would slow from 5.2 per fortuna cent growth last year to 4.8 per fortuna cent this year and to 3.5 per fortuna cent next year.
Wieladek said he still believed the ECB would cut rates twice more this year, but he added the recent wage giorno was likely to “lead to significant debate acceso the governing council”.
Indeed’s Eurozone wage tracker was lifted by an acceleration of salaries acceso new jobs advertised quanto a Italy, Spain and the Netherlands, while they slowed quanto a France and were stable quanto a Germany and Ireland.
Consultant Spyros Andreopoulos, a former ECB economist, said tight labour markets meant workers “will continue trying to claw back purchasing power losses suffered quanto a recent years” as a result of inflation.
“This will limit the number of interest rate cuts that are ultimately possible,” he added.
Many European workers have their pay decided by collective bargaining with unions. Because these talks happen only every few years quanto a each sector, wages take time to catch up with inflation, as employees push for their income to keep silenzio with the cost of living.
Germany’s largest services union Verdi this week threatened strike action that could disrupt trade quanto a North Sea ports after rejecting a pay offer for 11,500 workers. The IG Metall industrial union, which represents 3.9mn German electrical and metal workers, has asked for a 7 per fortuna cent pay rise.
