FRANKFURT, Jan 18 (Reuters): Workers in Europe are hoping this year's pay round will help restore incomes eroded by higher prices, but the expected boost to their purchasing power could hamper the European Central Bank's efforts to bring inflation back to target.
The ECB has singled out wages as the single biggest risk to its 1-1/2 year crusade against inflation. It expects salary growth across the euro zone of 4.6 per cent this year, far more than the 3 per cent pace it considers consistent with inflation at its 2 per cent target.
Higher wage settlements would be a risk to interest-rate cuts that financial markets are betting will start in April.
"We see a path to 3 per cent (wage growth) but it will be a bumpy road," Reamonn Lydon, an economist at the Central Bank of Ireland and one of the minds behind the popular Indeed Wage Tracker, said in an interview.
Pay hikes increase costs for firms and boost household income, both factors that might push up prices and require the ECB to keep rates high.
Unions see a combination of gradually cooling inflation, low unemployment and fat corporate profit margins as their best and possibly last shot this economic cycle at restoring workers' living standards.
ECB faces bumpy road to low inflation as wages rise
FE Team | Published: January 18, 2024 23:07:48
ECB faces bumpy road to low inflation as wages rise
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