Eurozone Labor Cost Growth Exceeds Expectations

(RTTNews) - The euro area hourly labor cost growth accelerated more than expected in the first quarter, which aligns with trends revealed by other indicators and the European Central Bank's view that wage pressures are set to remain elevated for some time before entering a downward trajectory next year.

Hourly labor cost grew at a faster pace of 5.1 percent on a yearly basis, which was faster than the 3.4 percent increase seen in the fourth quarter of 2023, data published by Eurostat showed on Monday. The rate was also faster than economists' forecast of 4.9 percent.

Wages and salaries and non-wage costs, the two main components of labor costs, grew 5.3 percent and 4.5 percent, respectively.

In services, hourly labor costs gained 5.0 percent and those in construction climbed 5.2 percent. Labor costs in industry grew 4.8 percent.

Data showed that hourly labor costs in the EU increased 5.5 percent after a 4.1 percent gain a quarter ago.

The biggest increases in hourly wage costs for the whole economy were recorded in Romania, Bulgaria and Croatia.

Last month, an indicator from the European Central Bank showed that negotiated wages rose 4.7 percent year-on-year in the first quarter, which was faster than the 4.5 percent increase in the previous three months.

The ECB has said wage pressures remain elevated in the euro area but are likely to ease next year.

"This negatively-sloped profile for wage growth helps to underpin the projected decline in inflation in 2025, with less pressure from labor costs next year," ECB Chief Economist Philip Lane said last week.

ECB policymakers have said that wage is primarily driven by the ongoing adjustment to the past inflation surge.

The ECB lowered interest rates by 25 basis points earlier this month, taking the refi rate to 4.25 percent. This was the first reduction since 2019. Economists expect one more ECB rate cut this year.