Wage growth will fuel inflation in the euro zone for several years, ECB estimates – 11/25/2022 at 15:01



On Friday, November 25, the European Central Bank published a report arguing that wage growth will continue to fuel inflation in the euro zone, even after the fallout from the health crisis and the war in Ukraine.

A blog published on the website of the European Central Bank (ECB) mentions that inflation in the euro zone will continue to be fueled by wage growth, even after the shocks linked to the Covid-19 pandemic and the war in Ukraine.

“Even after the energy and pandemic factors fade” from inflationary dynamics, “rising wages will be the main driver of rising prices over the next few years,” ECB executive board member Philip Lane said in a statement. a blog published on the ECB website.

Inflation exceeded the 10% mark this autumn in the region, and the ECB fears that a wage-price spiral could set in, which could derail its scenario of a gradual return of inflation towards its 2% target.

For the moment, this phenomenon has not yet been observed. For good reason, the latest contract negotiations have generally resulted in a salary increase of around 3.8% for 2022 and 3.5% for 2023, noted Philip Lane.

The increase does not change the dynamics of normal wages, says the ECB

In Germany, nearly 4 million employees in the industrial sector, in electronics and metallurgy, obtained an 8.5% wage increase over two years on Friday.

According to the explanations of Philip Lane, these increases are perceived as higher than normal, but reflect “largely the process of catching up following the decline in real wages that has occurred since the middle of 2021”, when the prices of energy and raw materials had caused global inflation to soar and eroded purchasing power.

Going forward wages will continue to rise but this should not be interpreted as “a permanent change in nominal wage dynamics”, according to Mr Lane.

Once the wage catch-up phase is over, “nominal wages can be expected to grow at the rate corresponding to the sum of labor productivity growth and the 2% inflation target”, he said. he concluded.

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