MNI INTERVIEW: Wage Tracker Gains Importance For ECB
MNI (ROME) - The European Central Bank's new Wage Tracker has gained importance for officials amid ongoing uncertainty and the lingering effects of the inflation surge, the head of the ECB’s Prices and Costs Division Sarah Holton told MNI.
Published every Wednesday following Governing Council meetings but available to officials as they make monetary policy decisions, the wage tracker enabled the ECB to correctly anticipate that negotiated wage growth would gain strength in 2024 before hard data were available, Holton, who works on the indicator, told an MNI podcast. (Listen here or here)
“We were also expecting from the wage tracker that negotiated wage growth would be around 4.5% this year [2024]. And this was in line with our forecast expectations,” she said.
The ECB was confident enough with the tracker to start publishing it in in December 2024, which was a “significant milestone,” according to Holton, given that other wage measures like Compensation Per Employee or the ECB Indicator of Negotiated Wages, are only available with a delay of more than two months and have no forward-looking element.
Wages account for just under 40% of the direct share of costs for services, compared with just over 20% for the goods sector, Holton noted. (See MNI INTERVIEW: EZ Consumer Expectations Surprisingly Accurate)
COLLECTIVE AGREEMENTS
While the tracker database covers almost half of employees in the top five euro area economies plus Austria and Greece, coverage in the forward-looking wage tracker is set to decrease as pay agreements expire. The share of the employees covered by active agreements in these seven countries will decline to around 29% by December this year, Holton said.
The wage tracker provides additional information alongside the macroeconomic projections published every quarter which forecast growth in compensation per employee, with is still the most comprehensive measure of its type in the euro area. (See MNI INTERVIEW: Central Bank Uncertainty Tends To Easier Policy)
In future updates of the tracker, the ECB would like to “delve more into sectorial developments” in addition to aggregate data, Holton said.
“We have a wealth of information also in different sectors and so over time we would like to develop this more so that can give even more rich analysis to the GC for anticipating future developments.”
The economy is still adjusting to a significant inflation shock and that needs to be taken into account when looking at developments any month or quarter, Holton stressed.
“We had very high wage growth in mid-2024 and some of the commentary we saw at the time was in the direction of this is too high wage growth. But what we knew at the time was that while those levels of wage growth in steady state, of course, would not be consistent with the 2% target. If you take into account that they were reflecting a reaction to a big shock”, she said.