European Central Bank Chief Economist Philip Lane said that generous wage deals in some eurozone countries are still within expectations. However, he warned that there are some upside risks to wage growth.
Lane added that nominal wage growth will peak this year and it will still take until 2025 for real wages to return to 2019 levels.
According to the latest official data from Eurostat, in the fourth quarter of 2022, the hourly labor costs rose by 5.7% in the euro area and by 5.8% in the EU, compared with the same quarter of the previous year. In the euro area, wages & salaries per hour worked increased by 5.1%, while the non-wage component rose by 7.7%. In the EU, hourly wages & salaries increased by 5.4% and the non-wage component by 7.2% in the fourth quarter of 2022.
The ECB watches labor costs to determine how much of the energy price shock caused by the Russian invasion of Ukraine filtered through to other areas of the economy and whether rampant inflation becomes entrenched by increasing so-called core inflation. ECB policymakers have said that wage growth in the 5-6% range this year still only represented a catch-up after inflation eroded the real value of incomes, but such wage growth was still inconsistent with the ECB's 2% inflation target.