The euro zone can expect “very strong” wage growth in the coming months as wages catch up with runaway inflation, the European Central Bank predicted on Monday.
“Wage growth in the coming quarters is expected to be very strong by historical standards”writes the ECB in its monthly bulletin.
The authors predicted “some catch-up between wages and high inflation rates” suffered since 2021, in the wake of the Covid-19 pandemic.
“Robust labor markets” alongside “increases in national minimum wages” and “unions demanding higher wage increases” are also expected to put upward pressure on wages.
In December, inflation in the euro zone fell below 10%,
However, the report explains that “real wages are significantly lower than pre-pandemic levels” in 2019 as inflation has eroded consumer power, with an annual wage growth rate for the second quarter of 2022 in the area euro at -5.2%.
The service sector, which faces “severe labor shortage”bucked that trend, with salaries “above pre-pandemic levels”.
Unions are expected to push for pay rises “particularly in low-wage sectors”.
In Germany, the Verdi union has demanded a 15% increase in wages of the approximately 160,000 employees of the postal giant Deutsche Post and 10.5% of the 2.5 million federal, state and municipal employees.
The good health of the labor market seems likely to guide further wage increases, despite a likely slowdown in economic growth.
In December, the ECB predicted that wages would increase by 5.2% in 2023, after having already increased by 4.5% in 2022.
ECB Vice-President Luis de Guindos predicted that wage increases would not lead to a “price-wage spiral”.
In the longer term, the ECB indicated that wage growth would face more obstacles, namely “the expected economic slowdown in the euro zone and uncertainty over the economic outlook”, partly due to the war underway in Ukraine.