MNI BRIEF: Euro Area Wages Sustainably Contained-ECB's Centano

The European Central Bank has been able to contain second-round effects on wages thanks to reforms on the euro area labour markets and changes in the governance of the Eurozone that have increased confidence in the currency, Bank of Portugal Governor Mario Centeno wrote Monday.

Despite the macroeconomic factors suggesting that wages pressures would continue to be contained, caution should “guide wages increases, which should be driven by productivity ... Job destruction and the freezing of new hires are more synchronized in recessions than during upswings,” he added as a warning to policymakers to avoid overtightening.

The European furlough schemes played a crucial role in facilitating a smooth transition through the pandemic and establishing a wage profile more aligned with price stability, Centeno wrote, adding that the bigger mobility of workers that came with the pandemic enhanced the capacity to align supply and demand in the market.