The European Central Bank (ECB) said that ECB wage tracker – an important tool used to assess wage developments across the euro area – is signaling that overall wage pressures have moderated since 2023. At the same time wage growth is expected to remain elevated in 2024, and to show a bumpy profile.
Growth in overall wages – which can be measured by compensation per employee (CPE) – has been elevated in the euro area since 2021 and reached 5.2% in 2023, its highest annual rate since the start of the euro. Given the links to inflation – via demand and cost-push channels – wages are closely monitored by central banks. In view of the importance of labor input costs in the services sector, wages are particularly important for services inflation.
Euro area negotiated wage growth including one-off payments increased from 1.4% in 2021 to 4.5% in 2023 – with inflation catch-up being a central motive in wage negotiations recently.
The latest release saw an increase in negotiated wage growth in the first quarter of 2024 to 4.69%, compared with 4.45% in the fourth quarter of 2023 and a record high of 4.7% in the 3rd quarter of 2023 (4.7%). This signals that negotiated wage growth has remained elevated in the euro area. This has raised concerns about potential inflationary pressures resulting from escalating wages.
Overall, negotiated wage growth is expected to remain elevated in 2024, which is in line with the persistence that has been factored into Eurosystem staff forecasts and reflects the multi-year adjustment process for wages.
However, wage pressures look set to decelerate in 2024. ECB wage tracker data for the first few months of the year, when most agreements take place, indicate that negotiated wage pressures are moderating. This is supported by other indicators for wage pressures in the euro area.
Feedback from firms participating in the ECB’s corporate telephone survey in the March 2024 round indicates that companies expect wage growth to decrease from around 5.4% in 2023 to 4.3% in 2024.
The ECB’s April 2024 Survey on the Access to Finance of Enterprises (SAFE) found that firms expect wages in the euro area to grow by 3.8% on average over the next 12 months – down from 4.5% in the autumn 2023 wave of the SAFE.