Agreed wages in the Eurozone increased 5.4% year on year in the third quarter, the biggest increase since 1999. Although it is not expected to stop the ECB from continuing to cut interest rates in December, it will test the bank's courage to cut interest rates and suppress market expectations for next year's interest rate cuts.
Driven by German wage levels, Eurozone salary levels recorded the biggest increase in 25 years in the third quarter.
On Wednesday, November 20, the ECB released data showing that the Eurozone's agreed wage growth rate for the third quarter reached 5.4% year on year, 1.9 percentage points month on month, the highest since the EU's monetary integration since 1999.
This figure is mainly driven by soaring wage levels in Germany. According to data released by the Bundesbank on Tuesday, Germany's agreed wage growth rate for the third quarter was as high as 8.8% year-on-year, the biggest increase since 1993. At the same time, the bank said that salary levels have peaked during this period, and this growth rate will not continue.
Less than a month until the ECB's last monetary policy meeting of the year, the market generally expects the bank to continue to cut interest rates, but since the latest salary data shows that price pressure still exists, expectations for the ECB's interest rate cut next year have been suppressed to a certain extent.
Economist David Powell commented:
“The sharp rise in Eurozone agreed wages in the third quarter will make hawkish ECB governing board members' uncomfortable ', but it is unlikely to stop the bank from cutting interest rates again in December.”
“Policymakers have turned their attention to more forward-looking wage growth indicators, and the broader inflation outlook is less worrying.”
Although several ECB officials have previously hinted that interest rates will be cut further in the future. However, as the Eurozone economy continues to weaken, the strength and pace of interest rate cuts is increasingly becoming the focus of the market's attention.
There are opinions that monetary policy should be relaxed quickly to stimulate the economy, and there are also opinions that “caution should be exercised” in the face of stubborn inflation in the service sector.
J.P. Morgan economist Greg Fuzesi said earlier that wage growth in the Eurozone is expected to slow significantly next year because the inflation-related catch-up effect (when people find that inflation exceeds expectations, employers are required to raise wages to compensate for loss of purchasing power, thereby boosting wage levels) will weaken.
ECB chief economist Ryan said in October that a stronger job market “increases the possibility of reaching the inflation target rather than falling short of the inflation target for a long time” and that “wage growth in the next few years will be more in line with the target than before the pandemic.”
