The war on wage increases is on. European Central Bank chief economist Philip Lane told the ECB website on Friday that wage growth will continue to fuel inflation in the eurozone. even following the energetic and pandemic factors have disappeared “. At issue for the economist: the rise in wages which “ will be the main driver of price increases over the next few years”, he wrote. For the Frankfurt institution, raising wages in the countries of the euro zone will plunge the economies into an inflationary spiral, while inflation has already climbed to 10.6% over one year in October.
The ECB is indeed afraid that a rise in wages, due to the rise in the cost of living, will in turn lead to a rise in production costs for the company which, to avoid reducing its profit margins, will pass it on to its products, fueling a further rise in prices, and thus creating a loop resembling a vicious circle from which it is difficult to extricate oneself without a sharp rise in rates.
A theory which, if it seems logical, is however disputed by a study published by several economists of the International Monetary Fund. The latter assert that raising wages does not systematically induce an inflationary spiral.
Employees asking for a raise
Spiral or not, the fact remains that the rise in wages is now recorded.
According to Philip Lane, the latest contract negotiations have so far resulted in an average salary increase of 3.8% for 2022 and 3.5% for 2023. In Germany, nearly 4 million employees in the sector industrial, in electronics and metallurgy, obtained Friday a wage increase of 8.5% over two years.
Wage increases that correspond, according to Philip Lane, “ largely a catch-up process, following the decline in real wages that has occurred since mid-2021 when energy and commodity prices drove up global inflation and eroded purchasing power.
If in Europe, the systematic rise in wages is beginning to be seen and to worry the central bank, in the United States this phenomenon is of a completely different magnitude.
A more alarming situation in the United States
Across the Atlantic, the phenomenon of the great resignation even saw 47 million Americans leave their jobs in 2021 and 20 million in the first five months of 2022, dragging down already weak production.
Result: the average hourly wage in the private sector has climbed, and now stands at 31.63 dollars, or 23 cents more than in December. In the end, wages have increased by 5.7% over the last 12 months in the country.
“The imbalance between supply and demand for workers, which is putting upward pressure on wages, is a key factor behind the Fed’s plans to continue to aggressively raise key rates. »expliqué Nancy Vanden Houten economist for Oxford Economics, in a note.
It is therefore tensions in the US labor market and wages that have prompted the US Federal Reserve to raise its rates four times in a row since June. The US central bank’s key rate now fluctuates between 3.75% and 4%, a level not seen since the 2008 financial crisis.
Rising interest rates versus rising wages
For the chief economist of the European Central Bank, the increase in wages that is coming to Europe will not correspond to “a permanent change in the dynamics of nominal wages “says Philip Lane. The latter expects “that nominal wages grow at the rate corresponding to the sum of labor productivity growth and the inflation target of 2% “, he adds.
It is in this perspective of gradually returning to a controlled rate of wage increases that the ECB wishes to continue to raise these rates. The euro’s guardian recently raised rates at its fastest pace on record, raising them by a total of 200 basis points since July and taking its main rate to 1.5% in just three months.
The institution’s chief economist said in an interview with Market News on Nov. 21: “I don’t think December will be the last rate hike.” Mais Philip Lane valued what “the ECB is not going to “consider a very big hike, like 75 basis points”, given that the institution predicts an entry into recession this winter. A recession that although “light and short-lived”, according to the economist, should curb the dynamics of wage growth and inflation.
(With AFP)
