Economics: No sign of spiraling eurozone wages

How far past neutral will the ECB push interest rates?

The next step on the ECB’s path of normalisation is undoubtedly bringing interest rates up to neutral. How far they push rates past neutral isn’t clear though. If medium-term inflation is still their ultimate guide, wage dynamics will once again become key.

Wage growth has picked up, and will probably rise further

Wage growth has clearly picked up in the eurozone this year. And it’ll probably rise further in the coming months. Our model based on inflation, the unemployment gap, and profits points that way. And minimum wage changes should provide a boost too.

The risk of a wage-price spiral looks limited though

We continue to think that wage-price spiral risks are limited. Labour shortages have peaked, wage settlements have picked up but aren’t high enough to trigger destabilising dynamics, and inflation expectations look reasonably well-contained.