Wage growth in the eurozone still remains high. In the fourth quarter of 2023 the increase was 4.5% on an annual basis, with a decline of two decimals compared to the previous three months, explain data from the European Central Bank (ECB). The reading was awaited by analysts as it is important for understanding Frankfurt’s next moves on interest rates. It is not yet certain that a scissors strike is completely ruled out during the April meeting, but it is close.
No fibrillation, but an upward persistence that is well beyond the ECB’s target. Despite the lack of incorporation of wage increases in Germany, which could cause the general estimate to be revised upwards in the coming months, the evidence is that there is no spiral between prices and wages. In this way, according to the vision of the most orthodox central bankers, the ECB’s efforts could be concentrated only on stabilizing inflation. This could translate into a further wait to launch the first rate cut, as instead loudly requested by the “doves” of the ECB. The problem, as highlighted last week by the institution’s president, Christine Lagarde, is that many data sets are still missing. Specifically, the one-off salary increases launched by Germany at the end of last year are missing. The disbursement, as highlighted by the Bundesbank, was supposed to take place in December, but for some parts of the public sector it will be scheduled for the first quarter of 2024. Therefore, there will be an increase in the general value, which will be able to give new impetus to the phenomenon in course.
Monitoring, according to the ECB, will be constant. The containment of wage adjustments, with the aim of not fueling a vicious circle that chases the consumer price index, is one of Frankfurt’s mantras. Even more than the cut in interest rates, although financial market players are convinced that it will arrive in a very short time, the turbulence in salaries is worrying. As early as next month, however, the fog should lift. The new reading could provide precise indications to institutional investors. Which have already reduced the chances that there could be a first rate cut in April, as was believed only two months ago.
According to Tomasz Wieladek, Chief European Economist at T. Rowe Price, wage dynamics “will continue to be on a positive trajectory, forcing Frankfurt to delay cuts in the cost of money”. Morgan Stanley and ING also agree, hypothesizing cuts only from June onwards. Conversely, Santander sees a certain easing in the short term, even if it warns that “it is increasingly complicated that it could be in April”. All eyes are on the June meeting, which could be decisive for the first reduction in the cost of borrowing. But much will depend on factors external to the euro area, such as the crisis in the Middle East and its macroeconomic consequences. Not only on Europe, the most vulnerable area, but on the global economy.