Wage growth in the euro zone is expected to be “extremely strong” in the coming quarters, but real wages are likely to decline given high inflation, the European Central Bank said in an economic bulletin published on Monday, Reuters and Agerpres reported.

A historic rise in annual inflation has pushed real earnings down over the past two years, and firms have finally started to adjust wages, raising concerns that high inflation could persist if wage-setting adjusts on a regular basis.

“Wage growth in the coming quarters is expected to be ‘extremely strong’ compared to historical patterns. This reflects a stable labor market, which has not yet been significantly affected by the economic slowdown, the increase in the national minimum wage and some adjustments between wages and high inflation,” ECB economists assess.

They warn that the expected economic slowdown and uncertainty about the outlook are likely to put downward pressure on wage growth for the foreseeable future.

ECB President Christine Lagarde recently argued that the pace of wage growth is likely to be faster than forecast and the ECB should be careful not to let these developments affect inflation expectations.

The ECB notes that real incomes are likely to decline in the coming months

However, the European Central Bank’s economic bulletin appeared to play down concerns about wages, as it showed that real incomes will continue to fall as inflation rates outpace significant increases in nominal wages.

“Real wages are now significantly lower than they were before the pandemic and are likely to fall further in the coming months, which could force unions to demand higher wages in the next round of negotiations, especially in areas where wages are lower.” — he concludes. ECB.

And the European Central Bank’s chief economist, Philip Lane, recently explained in a blog post that wages in the euro zone will take years to adjust to changing economic conditions, so they could put pressure on inflation long after the recession is over.energy and pandemic shocks.

“The range of wage setting means that it takes several years for nominal wages to catch up with the aggregate increase in the cost of living. This means that even after the shocks caused by energy and the pandemic disappear, rising wages will be the main driver of price growth in the coming years,” says the ECB’s chief economist.

The end of the era of low interest rates?

The authorities have been scrutinizing wage developments this year amid fears that firms may be forced to raise compensation to cushion the effects of high inflation, triggering an intractable spiral that could keep the ECB on hold for a long time. time high interest rates.

A recent report by the International Monetary Fund (IMF) suggests that persistent spirals between wages and prices are historically rare, and recent interest rate hikes by central banks are likely to help keep high inflation expectations from deteriorating.

The dynamics of wage and price growth in 2020 and 2021 were driven by “unusually high” shocks caused by the COVID-19 pandemic, in contrast to past episodes caused by more traditional economic events, the report said.

The Fed, the central bank of the United States, has in turn raised key interest rates several times in the past year to control inflation, which has also reached historic levels in that country.