Europe: The European Central Bank is more cautious about wage inflation.
2023-01-12
■ In the euro area, the pace of the rise in energy prices is slowing, while the pace of the rise in goods and services is accelerating.
■ The European Central Bank has become more cautious about the tight labor supply and demand and wage rise, which indicates that monetary policy will continue to tighten.
The December Eurozone Consumer Price Index (HICP, up 9.2% year-on-year) announced on the 6th was the lowest increase in four months due to the obvious slowdown in the pace of energy price increases. Subsidies offered by governments around the world to curb rising electricity prices and falling prices for fuels such as natural gas contributed to the drop. The pace of energy price increases is expected to continue to slow as natural gas prices have fallen since the start of the year due to a record-warm winter. However, the pace of price increases for goods and services accelerated, with core HICP excluding food, energy, alcoholic beverages and tobacco (up 5.2% from the previous year) recording the highest increase since the statistics began. It is too early to confirm that the underlying inflation momentum is weakening.
According to the Eurozone business and consumer survey released by the European Commission, the sales price forecast of manufacturing and construction industries has peaked since the middle of last year, and the transmission of raw fuel prices is expected to stop. The sales price prospects of the service and retail industries have remained high until recently. This also shows that it will take a while for retail prices to reach their peak, and the upward pressure on service prices is still large.
Christina Lagarde, President of the European Central Bank (ECB), admitted at the post-government meeting on December 15 last year that the possibility of raising interest rates by 0.50% at the next management committee meeting in February is very high. In order to control inflation at the target level, the central bank is further inclined to the position of tightening and believes that it is necessary to continue to raise interest rates for a long time. While the peak of energy prices has been clear, the European Central Bank has become more cautious about inflation. Many people take the tight supply and demand of labor force and wage rise as the reasons. On this basis, the European Central Bank released an analysis of wage trends in the euro area after the COVID-19 crisis in its economic report released on the 9th. At present, the wage growth is still relatively flat, and the trend has not changed. However, there are signs that the pressure on the rise of wages in the service industry is increasing. With the continuous decline of real wages, it is pointed out that the wage negotiations of the labor union may spread, especially in the low-wage industry. Based on a series of analysis, we expect that the wage growth in the coming quarters will be very high, relative to the historical pattern. In the euro area, the unemployment rate (last November: 6.5%) remained at the lowest level since the statistics. Despite the economic slowdown, the labor market situation continued to tighten. According to the recent index results and the view of the European Central Bank, it is difficult to expect the policy position to change before confirming the weakening of labor and wage indicators.
■ The European Central Bank has become more cautious about the tight labor supply and demand and wage rise, which indicates that monetary policy will continue to tighten.
The December Eurozone Consumer Price Index (HICP, up 9.2% year-on-year) announced on the 6th was the lowest increase in four months due to the obvious slowdown in the pace of energy price increases. Subsidies offered by governments around the world to curb rising electricity prices and falling prices for fuels such as natural gas contributed to the drop. The pace of energy price increases is expected to continue to slow as natural gas prices have fallen since the start of the year due to a record-warm winter. However, the pace of price increases for goods and services accelerated, with core HICP excluding food, energy, alcoholic beverages and tobacco (up 5.2% from the previous year) recording the highest increase since the statistics began. It is too early to confirm that the underlying inflation momentum is weakening.
According to the Eurozone business and consumer survey released by the European Commission, the sales price forecast of manufacturing and construction industries has peaked since the middle of last year, and the transmission of raw fuel prices is expected to stop. The sales price prospects of the service and retail industries have remained high until recently. This also shows that it will take a while for retail prices to reach their peak, and the upward pressure on service prices is still large.
Christina Lagarde, President of the European Central Bank (ECB), admitted at the post-government meeting on December 15 last year that the possibility of raising interest rates by 0.50% at the next management committee meeting in February is very high. In order to control inflation at the target level, the central bank is further inclined to the position of tightening and believes that it is necessary to continue to raise interest rates for a long time. While the peak of energy prices has been clear, the European Central Bank has become more cautious about inflation. Many people take the tight supply and demand of labor force and wage rise as the reasons. On this basis, the European Central Bank released an analysis of wage trends in the euro area after the COVID-19 crisis in its economic report released on the 9th. At present, the wage growth is still relatively flat, and the trend has not changed. However, there are signs that the pressure on the rise of wages in the service industry is increasing. With the continuous decline of real wages, it is pointed out that the wage negotiations of the labor union may spread, especially in the low-wage industry. Based on a series of analysis, we expect that the wage growth in the coming quarters will be very high, relative to the historical pattern. In the euro area, the unemployment rate (last November: 6.5%) remained at the lowest level since the statistics. Despite the economic slowdown, the labor market situation continued to tighten. According to the recent index results and the view of the European Central Bank, it is difficult to expect the policy position to change before confirming the weakening of labor and wage indicators.