Q4 Labour Cost Acceleration Underlines Inflationary Concerns

The Portuguese Q4 Labour Cost Index (per hour worked, WDA) rose +5.7% Y/Y, from an upwardly revised +5.1% prior. While Portugal is not a major Eurozone economy in terms of weighting (for context, it is only 2.4% of the EZ 2023 HICP weighting), it provides support to the view that the ECB will need to assess Q1 '24 wage pressures before comfortably being able to begin their easing cycle.

• The rise in the LCI came as average costs per employee rose at a faster rate than total hours worked per employee, with the former rising +6.1% Y/Y (vs +6.6% prior) and the latter +0.4% Y/Y (vs +1.6% prior).
• Breaking down the Q4 LCI figure, wage costs (per hour worked) rose +5.5% Y/Y (vs +4.8% prior) while other labour costs (per hour worked) rose +6.8% Y/Y (vs +6.4% prior).
• At a sector level, services saw the largest increase in wage costs per hour (+5.8% Y/Y) though the smallest rise in other labour costs (+6.1% Y/Y).
• With respect to inflation, we see that LCI growth has outpaced real productivity per hour worked since Q3 '22. This will have pushed up unit labour costs and has likely contributed to sticky services inflation in Portugal. Services CPI rose to 4.51% Y/Y in January '24 (vs 4.15% in December).