EUROZONE DATA: Notable Fall in ECB Q2 Negotiated Wages

ECB Q2 negotiated wages fell notably to 3.55% (vs 4.74% prior). MNI had seen estimates ranging from 3.5-4.5% Y/Y coming into the release. However, with ECB-dated OIS already pricing 68bps of easing through the remainder of this year, and the Governing Council still trying to guide for quarterly 25bp cuts, the data has not provided a sufficiently dovish impulse to have much market reaction,

• The fact negotiated wage growth eased from Q1 levels is not so surprising, with analysts noting that the Q2 figure would be pulled lower by fewer one-off German wage settlements and an easing of French pay growth.
• However, the reading still lies on the low side of consensus (and likely ECB) expectations.
• This should contribute to a moderation in total compensation per employee growth in Q2 (due September 6), which poses downside risks to the ECB’s 5.1% projection from June (vs 5.1% in Q1).
• However, further significant easing in negotiated pay growth is not guaranteed, as illustrated by the apparent stalling of the Indeed wage tracker in recent months (which should lead negotiated wage growth).
• Although the easing of negotiated wage pressures is a step in the right direction, the Eurozone’s anaemic productivity growth means that current nominal wage growth is still probably consistent with above-target inflation rates in the medium-term.