Headquarters of the Eurozone Central Bank – Kai Pfaffenbach – Reuters
The ECB highlighted wages as the most important variable in determining the start of interest rate cuts
Euro zone wage growth is expected to peak early this year, but the future trajectory remains uncertain, a new forecasting tool developed by the European Central Bank showed on Friday.
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The ECB highlighted wages as the most important variable in determining whether it can start cutting interest rates and take a break from the fight against high inflation.
Its new salary tracker, detailed for the first time in a document published on Friday, showed that pay growth is expected to peak at around 5% early this year.
But it remains to be seen whether and how quickly wage increases will fall back to the 3% level that the ECB considers compatible with its 2% inflation target.
“Negotiations in the first quarter of 2024 will likely be decisive for the evolution of wage pressures in 2024,” the study authors wrote.
Often cited by ECB chief economist Philip Lane, the ECB’s new tracker uses data from individual wage agreements in Germany, France, Italy, Spain, the Netherlands, Austria and Greece to estimate wage pressures and gauge sentiment.
The ECB then attempts to predict the future growth of wage settlements based on how key macroeconomic variables tend to predict wage settlements in each country.