The European Central Bank has a new reason to be optimistic. One of the last pieces that lack the ECB to be able to sing victory in its fight against inflation is to get salaries to moderate their growth in the euro zone, and these are already beginning to give encouraging signs for the Central Bank. The favorite ECB indicator to anticipate future movements in the salary front has given this week a great joy to the central bank: the growth rate has been moderated so much, that it has fallen to the lowest level of the last inflationary crisis, which began Between 2021 and 2022. It is a signal that confirms the last message of the ECB, which tries to justify more types of types in 2025, given the possibility that inflation reaches this summer the goal of 2%.
For the ECB, wages have become one of the key pieces for 2025. With most macro indicators confirming the weakness of inflation, and the expectation of the central bank that this will reach the goal in the coming months Of 2%, the salary increase rhythm had become a stone in the shoe for the ECB, since it doubts if the type cuts could be too strong. If salaries were not moderated, the expectation that inflation continued to moderate its growth was questioned.
Therefore, Christine Lagarde, president of the ECB, emphasized the last monetary policy meeting of the agency, in the need to closely monitor the salary indicators of the euro zone, being the key component in the inflation of the services sector, the Last element that is generating more inflation in the Eurozone, in the opinion of the ECB. “There is an indicator that continues to fall to our goal: inflation of the services sector, this domestic inflation, in Europe, still resists. We know that these services are very intensive in workforce, and it is [la inflación de los servicios] Very sensitive to wages, “Lagarde explained at the meeting.
In this front, the speech was optimistic: “We tried to understand salaries because they are super important for services, and all the indicators we have now point down. I confirm that the salary indicators in 2025 will go down. The compensation by employee, our Salary search engine … Everything looks in the same direction, “said Lagarde. And to the first change, just a week after the meeting, the latter, the “indicator of negotiated salaries” (Wage Tracker) of the ECB, has given a great signal to the Central Bank.
An advanced salary indicator
The ‘Wage Tracker’ of the ECB has fallen to 1.5% at the start of 2025, according to the data published Wednesday, and is the first time in which the indicator reaches this level since the late 2021. It was, in that Moment, when the inflationist rebound of the last price crisis was already confirmed, so the ECB can now celebrate how the negotiated wage indicator has left behind the last inflationary crisis, at least until new order.
The importance of this indicator is that it works as an advanced sign of what can happen in the salary front in the coming months, since it includes the evolution of the salaries negotiated between the workers and the employers in their agreements and labor agreements. “The negotiated wage indicator uses data from the collective agreements, which means that it collects and adds information from thousands of these agreements, between unions and employee associations, contract contract,” explains the ECB.
The indicator reached a historic peak last year, in 5.3%, and since then it has experienced a rapid correction that has taken it to 1.5%. From there, in part, the optimism that Lagarde has shown at the ECB’s last meeting on this front is explained. The expectation of lower salary pressure in the coming months is related to the weakness of the European economy, with some activity dynamics returning to a situation similar to that before the Covid-19 pandemic arrived.
This fits with a scenario of decreases of more aggressive types by the ECB of what was expected a few months ago. The market, after last week’s type cut, has accelerated its prospects to see drops of types in the coming months, and if before the ECB’s meeting last Wednesday I expected there to be 4 type cuts throughout the year 2025 (including last week), now expects 5 drops in the price of money in 2025.
Of Guindos takes away importance to the neutral type
The actuality of the ECB has also been marked by the last message that Luis de Guindos, vice president of the institution, has left, with which he has tried to take importance to the neutral interest rate, one of the issues that has gained the most weight in recent Days, for being key to knowing how far the Central Bank will continue to lower.
Next day 7 the ECB will publish a document in which they will analyze where they believe that the neutral type is found (the level of types in which it is not stimulated, nor is it negatively affected by growth and inflation), but from Guindos he wanted to clarify The importance of this data at this time.
“The neutral type range can be very wide,” says De Guindos, and points out how “our banking surveys provide a better indicator about the restriction level of our monetary policy, by showing how banks are stimulating, or hardening, Financial conditions.
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