ECB Sees ‘Very Strong’ Wage Growth Ahead as More Hikes Planned

The European Central Bank predicts wage growth — a key indicator of where inflation is headed — will be “very strong” in the coming quarters, strengthening the case for more interest-rate hikes.

Wage growth across the euro zone is expected to be “very strong” over the next few quarters but real wages are still likely to decline given rapid inflation, a European Central Bank Economic Bulletin article argued on Monday.

A historic surge in inflation has eroded real incomes over the past two years and firms are finally starting to adjust wages, leading to worries that high inflation could be perpetuated if wage setting is adjusted on a more permanent basis.

“Wage growth over the next few quarters is expected to be very strong compared with historical patterns,” the article written by staff economists concluded. “This reflects robust labour markets that so far have not been substantially affected by the slowing of the economy, increases in national minimum wages and some catch-up between wages and high rates of inflation.”