According to analysts from Danske Bank, higher wage growth is key if the European Central Bank is to realize its inflation target; therefore, euro area wage data for Q3 due out on Tuesday should be watched closely.
Key Quotes:
“In the euro area, the wage growth figures for Q3 are due for release on Tuesday. Wages have been increasing steadily since Q3 16 reaching 1.8% y/y in Q2 17. Although wage growth has increased, it is still well below the pre-crisis average (from 1996 to 2008) of around 2.4% y/y. We do not expect wage growth to catch up to the pre-crisis average in the near future, as inflation expectations and negotiated wages (especially in Germany) do not show an upward trend. The still-low wage growth is also one of the main reasons why we do not expect core inflation to pick up significantly in 2018, despite the ECB arguing with its ‘super core inflation’ measure that underlying inflation pressures are building up. We expect wage growth to remain around 1.8% y/y in H2 17. Note that the revised inflation figures for November are also due to be released on
Monday.”
“The German Ifo expectations are also due for release on Tuesday. Ifo expectations have been on the rise since we entered 2016 and this measure of German business sentiment might not have reach its peak yet. Although ZEW expectations dropped to 17.4 in December, German PMIs released this Thursday showed another month of increases both in manufacturing and services. Hence, we expect IFO expectations to increase to 111.5 in December.”
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