Wages in the eurozone increased at a record pace between the final quarter of 2022 and a year earlier, highlighting why many central bankers worry inflation will be hard to tame.
Figures published by Eurostat, the EU statistics agency, on Friday showed hourly labour costs in the eurozone accelerated by 5.7 per cent over the period.
The growth in hourly labour costs, which includes wages and non-wage costs such as taxes, increased from 3.7 per cent in the previous quarter to hit the highest level since such data started being collected for the eurozone in 2010.
The rise means wage growth in the eurozone is now outstripping the US, where hourly unit labour costs for non-farm workers in the same period was up 4.9 per cent. But the eurozone figure remains below the 6.7 per cent growth in UK wages excluding bonuses.
Signs that wage growth is accelerating and putting upward pressure on prices in the single currency bloc is one of the big worries of the European Central Bank, which raised interest rates for the sixth time at its meeting on Thursday.
ECB president Christine Lagarde said higher wages were one of the factors that “could drive inflation higher,” when announcing its decision to raise its deposit rate from 2.5 per cent to 3 per cent on Thursday.
Other members of the ECB’s governing council said on Friday it would need to raise rates further. Slovakian central bank boss Peter Kažimír said it was “not yet at the finish line” and his Lithuanian counterpart Gediminas Šimkus said this week’s rate rise “was not the last”.
Recent wage agreements since the start of this year and a eurozone unemployment rate near an all-time low at 6.7 per cent in January pointed to further increases in wage growth. This would keep price pressures high — particularly in the wage-sensitive services sector.
During the period from the fourth quarter of 2021 to 2022, there were double-digit increases in seven of 27 EU countries, including Poland, Bulgaria, Slovenia and Lithuania. German hourly labour costs rose 6.3 per cent, which was the highest since such data started being collected in 1997, according to Eurostat.
Deutsche Post last weekend agreed a pay deal for 160,000 employees to avert a strike by German postal workers, by giving them €3,000 of one-off payments over the next year plus a €340 rise in monthly pay the following year. The Verdi union said it added up to a pay rise of 11.5 per cent, but the Bundesbank calculated it increased wages by just over 7 per cent.
“Timelier data show that the labour market remains strong, which suggests that wage growth will stay high this year,” said Jack Allen-Reynolds, an economist at research group Capital Economics. “While the outlook for monetary policy is highly uncertain, the wage and price data send a clear message.”
Higher wages have not been enough to offset the increase in workers’ cost of living, however. Inflation rose 8.4 per cent in the eurozone last year, leaving many people with a pay cut in real terms.
However, economists expect inflation to fall sharply this year — the ECB forecast it would slide from 7.8 per cent in the first quarter of this year to 2.8 per cent in the fourth quarter — which is likely to reduce pressure on wages.
“Private sector wage growth in the eurozone will likely pick up further at the start of this year and a wage price spiral is a risk, but for now, we still think wage growth will fall in line with inflation,” said Claus Vistesen, an economist at Pantheon Macroeconomics.