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Labour market pressures on Eurozone inflation remain low as wage growth falls - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 17, 2015.

  1. FXStreet_Team

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    FXStreet (Delhi) – Bert Colijn, Research Analyst at ING, notes that the Eurozone labour costs increased only by 1.1 percent year-on-year in Q3 2015, down from 1.6 percent the quarter before.

    Key Quotes

    “Wage growth was down from 2 to 1.4 percent. This is disappointing as employment growth was quite strong in the third quarter and unemployment has been coming down steadily.”

    “The slowing wage growth means that the pressure from the labour market on inflation weakens, while it was already very low. When energy price effects start to wear off early next year as the largest drop in oil prices occurred about a year ago, wage growth will become a more important factor again. Today’s release indicates that upward pressure on inflation will remain weak early next year as wage growth is not contributing much to price growth.”

    “This environment remains accommodating to business, as real wage growth – adjusted for inflation – is still quite strong. This means that while costs remain manageable, consumption is likely to continue to grow because of growth in real wages and employment. The question is what will happen once energy effects wear off and real wages take a hit.”

    “Even though the overall labour market environment remains slack, the differences between countries are large in Europe. Germany and most eastern European countries experience a tight labour market already, with wage growth above 2 percent up to a whopping 7.4 percent in Latvia. Italy experienced negative labour cost growth for the second quarter in a row though, while the Netherlands saw labour costs stagnate in the third quarter. Spain saw a small increase of 0.3 percent, which is very weak historically, but matches the current labour market conditions with 21.6 percent unemployment.”
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