A key measure of euro-zone wage growth eased – providing further assurance to European Central Bank (ECB) officials seeking to lower interest rates next week.
Compensation per employee rose 4.3 per cent in the second quarter – down from 4.8 per cent in the first three months of the year, according to calculations by Bloomberg Economics based on Eurostat data published on Friday. In June the ECB had predicted pay growth of 5.1 per cent for the period.
The data is among the last to arrive before an expected reduction in interest rates by the ECB next Thursday. Should inflation continue to abate, borrowing costs will be lowered every quarter until they reach 2.5 per cent, according to a Bloomberg survey.
Workers’ salaries have been rising rapidly to offset painfully higher living costs. That has proved a headache for the ECB, which worries that the catch-up will keep consumer-price gains elevated.
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While inflation has slowed in recent months, pressures in the services sector – where wages play a larger role – have remained stubborn. Recent data, though, have been more promising, revealing a marked slowdown in negotiated salaries last quarter.
The volatility is partly down to Germany, where some workers received large one-off payments to compensate for inflation at the start of the year. Some, including ECB executive board member Isabel Schnabel, have warned that wage growth may pick up again in the third quarter.
But there’s also hope of further moderation down the line. ECB chief economist Philip Lane said last week that pay gains are set to slow sharply in 2025 and 2026 – increasing the confidence that inflation can be brought back to the 2 per cent target next year.
Officials have also been keeping a close eye on corporate profits and workers’ productivity to get a full sense of price pressures in the euro zone. The latter kept declining in the second quarter – an issue that policymakers have increasingly highlighted as a concern.
Separate data published on Friday showed that euro-zone output grew less than initially reported in the second quarter, with gross domestic product rising 0.2 per cent from the previous three months – down from 0.3 per cent. – Bloomberg
