Euro-Zone Wage Growth to Quicken in Second Half of This Year

Euro-area wage growth is projected to quicken in the second half of 2024, though it will remain significantly below prior peaks, according to the European Central Bank (ECB). This forecast is a key consideration for the ECB as it assesses inflation risks, including those stemming from the conflict in Iran. The central bank's projections indicate that nominal wage growth will reach 4.7% in 2024, a notable increase from 4.4% in 2023. However, this figure is still considerably lower than the 5.2% observed in 2022. Real wage growth, which accounts for inflation, is expected to turn positive for the first time since 2019, reaching 1.3% in 2024, up from 0.5% in 2023. This improvement is attributed to the projected slowdown in inflation to 2.3% in 2024 from 5.4% in 2023. The ECB's analysis also highlights that the "wage-price spiral" risk, where rising wages fuel further price increases, is diminishing. This is partly due to a projected decline in the profit share of national income, which is expected to fall from 47.7% in 2023 to 47.4% in 2024. The central bank anticipates that the full pass-through of wage increases to prices will be limited, with only about 0.3 percentage points of the projected wage growth contributing to inflation in 2024. This moderation in wage pressures is a crucial factor for the ECB as it navigates monetary policy decisions.