Eurozone wage growth increases but remains weak - ING

Bert Colijn, Senior Economist at ING, explains that the Eurozone’s 4Q16 wage growth increased slightly from 1.5% to 1.6% YoY, indicating that underlying price pressures are likely to remain weak for some time.

Key Quotes

“Mario Draghi’s linchpin for a self-sustained increase in inflation, wage growth, is not moving at the moment. The increase in wages and salaries of just 1.6% is still below the 1.8% growth of 4Q15, indicating that the recovery in wages still disappoints. By comparison, wages grew by 3% YoY on average during the 2000s and is therefore still well below its long-term average. Given the surge in inflation of the past few months, it could well be that real wage growth comes in negative for the first quarter as Eurozone wage pressures remain weak for the moment.”

“The main reason for the slow wage growth is that the recovery of the job market is still underway, with full employment far from within reach. Even though unemployment has come down substantially during 2016, it is still well above the rate at which wages are expected to accelerate. This does not mean that there aren’t any industries or countries in which labour shortages are starting to become an issue. The Eurozone vacancy rate increased in Q4 and the number of businesses indicating that labour shortage is hindering production is increasing. Still, with unemployment this high, it seems that price pressures from the job market will not be meaningful in the short-term.”

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