MNI BRIEF: Pay Rises Must Not Mean Price Surge - CBI's Donnery

Ireland’s tight labour market is putting upward pressure on wages and, potentially, inflation, Central Bank of Ireland deputy governor Sharon Donnery said in a speech Thursday. Pay packets are expected to grow by 5-6% over the next two years -- compared with 4-5% in the euro area as a whole -- which could make it harder for the ECB to reach it’s 2% inflation target.

“This does not mean we do not expect wages to adjust to high rates of inflation – so-called ‘second round’ effects. But we want to avoid a situation whereby third and fourth round effects contribute to self-perpetuating wage-price dynamics," she said.

But there are indications of a slowdown in hiring rates and pay increases following rapid growth in early 2022 (MNI BRIEF: Eurozone Pay Gains May Have Peaked - Irish NCB). "Combined with gradually declining job postings in certain countries, this suggests that some employers are starting to rethink their demand for labour as they balance the currently tight labour market against an increasingly uncertain and deteriorating economic outlook,” Donnery said.