EUROZONE DATA
The preliminary estimate of the Eurozone Q1 labour cost index showed growth of 4.9% Y/Y. While there was no consensus for the print, it represents a notable acceleration from the 3.4% Y/Y seen in Q4 2023.
- We will have a better indication of where Q1 compensation per employee (released on June 7 alongside the full EZ national accounts) is headed once Thursday’s negotiated wages data are in hand, but today’s labour cost estimate alone suggests upside risks to overall unit labour costs.
- However, the ECB's March projections assume that still-strong unit labour cost growth will be absorbed by a moderation in unit profits in Q1, enabling GDP deflator growth to soften. As such, today’s data shouldn’t sway the ECB meaningfully towards a particular path for rates after the June meeting.
- But the data creates some tension with other indicators of Q1 wage growth: The Indeed wage tracker has moderated in the last 3 months, and analysts expect Thursday’s ECB negotiated wages tracker to decelerate from 4.5% Y/Y in Q4 2023 (though it is projected to remain above the 4.0% handle).
- The preliminary labour costs release from Eurostat does not contain country level estimates, but the Eurozone-wide industry split indicated a broad-based acceleration.
- Services labour costs accelerated to 5.2% Y/Y (vs 4.0% prior) while industry/construction labour cost growth rose to 5.0% Y/Y (vs 4.1% prior). Note that this makes it a little unclear why overall labour costs didn’t rise by more, given public sector and defence costs also registered 5.0% Y/Y growth in Q1.
- A reminder that we need a deep dive into the mechanics of the GDP deflator and Unit labour costs in March here.
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