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Wage Growth Plateauing (And Broadening) At a High Level (2/2)

GLOBAL

The rise of wage growth above pre-pandemic levels is obviously a concern for central bankers who generally see overly tight labor markets as an obstacle to getting inflation back to target.

  • While Fed Chair Powell said last week he didn't see a wage-price spiral, he noted "wages aren't coming down. They're just moving sideways at an elevated level". Similarly, ECB Pres Lagarde noted in late October that incoming data "indicate that the growth of wages may be picking up".
  • Multiple indicators, including the CBI's new dataset, point to Eurozone wage growth plateauing at a high rate (Lagarde may be looking at more backward-looking data). Their report also cites the Atlanta Fed's US Wage Tracker, which is similar but tracks individuals' wages rather than wages in job postings.
  • Comparing the measures (see chart), the trans-Atlantic trend is clear: current wage growth is far higher than pre-2021, though is still struggling to keep pace with inflation at/near double-digits.
  • There is little sign of a significant slowdown in Europe, and forward looking indicators suggest that US wage growth is set to remain above pre-pandemic levels well into 2023. An acceleration in Eurozone wage growth may prove more reliant on negotiated settlements; ongoing German metalworker union talks could be a near-term bellwether in this respect.

Sources: Atlanta Fed, CBI, MNI

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The rise of wage growth above pre-pandemic levels is obviously a concern for central bankers who generally see overly tight labor markets as an obstacle to getting inflation back to target.

  • While Fed Chair Powell said last week he didn't see a wage-price spiral, he noted "wages aren't coming down. They're just moving sideways at an elevated level". Similarly, ECB Pres Lagarde noted in late October that incoming data "indicate that the growth of wages may be picking up".
  • Multiple indicators, including the CBI's new dataset, point to Eurozone wage growth plateauing at a high rate (Lagarde may be looking at more backward-looking data). Their report also cites the Atlanta Fed's US Wage Tracker, which is similar but tracks individuals' wages rather than wages in job postings.
  • Comparing the measures (see chart), the trans-Atlantic trend is clear: current wage growth is far higher than pre-2021, though is still struggling to keep pace with inflation at/near double-digits.
  • There is little sign of a significant slowdown in Europe, and forward looking indicators suggest that US wage growth is set to remain above pre-pandemic levels well into 2023. An acceleration in Eurozone wage growth may prove more reliant on negotiated settlements; ongoing German metalworker union talks could be a near-term bellwether in this respect.

Sources: Atlanta Fed, CBI, MNI