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Wage Growth In The Euro Area Remains Strong

Despite the gradual return of inflation to the ECB's 2.0% target, prices for services are rising significantly faster (+3.7%). Given the increase in wages, the trend should continue. Not sufficient to give the ECB reassurance.

By EC Invest

Collective wage bargaining in the euro area led to an annual wage growth of 4.7% in the first quarter of 2024, as per the European Central Bank's (ECB) figures. The previous quarter saw a 4.5% increase.

These figures lend themselves to a double reading, which is clearly good news for employees:

Wages that are rising faster than inflation (2.8% on average in the first quarter and 2.4% in April) allow them to regain some of the purchasing power lost in recent years, and give them the means to consume, supporting economic activity.

However, such a rise well above inflation would not be welcomed by the European Central Bank.

It is a known fact that wage increases have an unfortunate tendency to have an impact on inflation, particularly in the services sector, where the labor force plays a crucial role. The benefit of significant productivity gains would be to offset such wage increases and reduce their harmful impact on the competitiveness of our economies. But we are not there, yet. Labour productivity in the eurozone decreased by 0.6% in 2023.

While inflation in the euro area fell to 2.4% in April, prices for services rose again by 3.7%.


The sector is therefore one of the main contributors to inflation today. And given the increase in wages, it should remain so, giving a hard time to an ECB that wants to lower its key rates as soon as possible. While this figure does not call into question the rate cut promised for June, widely reported by the Frankfurt authorities, it should, on the other hand, strengthen the position of those who prefer to take a cautious approach to the The European Monetary System is not committed to lowering European policy rates too quickly.

Therefore, even if the activity indices show an improvement, with the HCOB Eurozone Composite PMI at 52.3 points in May, we do not expect a strong rebound of our economies whose growth should turn around 0.8% over the whole of 2024.

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