MNI INTERVIEW: Eurozone Wage Growth Heads For ECB Comfort Zone

The eurozone remains on track for wage growth moderation compatible with the European Central Bank’s 2% inflation target, though the road will be “bumpy”, an economist responsible for the Indeed Wage Tracker which is closely followed by the ECB told MNI.

While higher-than-expected Q1 wage growth was “certainly not what the ECB policymakers would have hoped for”, it does not cast significant doubt on their expectations for a gradual slowdown in the rate of pay increases over the coming year or two, Indeed’s Director of EMEA & APAC Economic Research Pawel Adrjan said in an interview.

The latest wage data was “neutral” for the ECB’s goal, Adrjan told an MNI Podcast, citing one-off awards in the German public sector, and noting that moderating inflation was making it harder to argue for higher salaries while forward-looking trackers continue to indicate an overall downward trend. (See MNI SOURCES: September Rate Cut In Sight For ECB)

“We do expect that one-off payments to have an impact through the rest of 2024, contributing to this bumpiness without necessarily meaning that wage growth won’t fall in the medium term to longer,” he said.

FEWER VACANCIES

While the eurozone labour market continues to be strong, there are signs of easing, such as the fall in job vacancies from peaks seen in 2023 and 2022, as employment rose in almost all of the bloc’s currencies in quarter-on-quarter terms, Adrjan said, adding that the Indeed Wage Tracker, which monitors online job ads, is a useful forward indicator.

“Wages for new hires tend to react more quickly to economic conditions than old-time workers,” he said, adding that in past years IWT data showed wages growing more quickly in sectors expanding more quickly. “So we are likely to see that in the way down ... as job vacancies decline.”

The Indeed Wage Tracker’s methodology is conceptually similar to that of the wage growth tracker produced by the Atlanta Fed publishes, and categorises data according to job titles and the different eurozone countries.

Unlike in the UK and the U.S., where job postings are only more or less back to pre-pandemic levels, in Germany, France, Italy and Spain they are between 40% and 70% higher, Adrjan said, adding that suggestions of labour hoarding in the eurozone had been exaggerated.

“It’s hard to say how much labour hoarding there is, but companies that are labour hoarding won’t be hiring at these higher rates,” he said.

While there are encouraging signs, the eurozone is still some distance from achieving the 1% productivity growth which would allow for 3% wage increases to be compatible with the ECB’s inflation target, a scenario sketched out by the central bank’s chief economist, Philip Lane.

“We are not there yet but we are likely to be trending towards that level in one or two years,” Adrjan said.