Spare capacity in labour market mutes wage pressures

We now expect the euro-zone economy to grow more quickly this year than the consensus or the ECB expects. Inflation too will be higher than others are forecasting as supply shortages persist into the second half of the year. But with plenty of spare capacity in the region’s labour market, there is little chance of a wage-price spiral that would trouble the ECB. Indeed, we expect the Bank next week to reiterate its commitment to “forceful” and “persistent” policy accommodation.
Jessica Hinds Europe Economist
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European Economics Weekly

Wage growth to stay weak, inflation to keep rising

Data published this week highlight the challenge to euro-zone consumers from subdued pay growth and rising inflation. We expect inflation to keep rising in the coming months, and probably further than most expect. Next week, we will host a Drop-in webinar on the causes and effects of the recent surge in European gas prices.

17 September 2021

European Data Response

Euro-zone Final HICP (Aug.)

Rising costs – from shipping to energy – are likely to push euro-zone inflation up even further in the coming months. They might also mean that it doesn’t fall quite as quickly next year as we currently assume. But by the end of 2022, we still suspect that inflation will be a long way below the ECB’s target.

17 September 2021

European Data Response

EZ Hourly Labour Costs (Q2) & Ind. Prod. (Jul.)

The sharp fall in euro-zone average hourly labour costs in Q2 compared to a year earlier was mainly due to pandemic-related distortions to the data that will continue to muddy the picture for another couple of quarters. Nevertheless, the spare capacity in the labour market will keep wage growth subdued.

15 September 2021

More from Jessica Hinds

Nordic & Swiss Data Response

Sweden Consumer Prices (June)

The further fall in Swedish headline inflation in June is at odds with the recent data from the US and the UK, but came as no surprise given the recent drop in electricity prices. And with non-energy inflation also declining, the Riksbank will be in no rush to raise interest rates.

14 July 2021

European Data Response

Euro-zone Final PMIs (June)

The PMIs point to the euro-zone economy recovering strongly in June and provide evidence that price pressures are now spilling over into the services sector, even in the periphery. Nevertheless, we still think that higher inflation will prove temporary as shortages should ease in the second half of the year.

5 July 2021

European Data Response

EZ Unemployment (May) & Final Mfg PMIs (Jun.)

The big fall in euro-zone unemployment in May highlights that the re-opening of many services sector firms in that month has boosted hiring activity. And with a strong recovery now underway, it now looks unlikely that unemployment will rise in the coming quarters.

1 July 2021
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