Wage growth across Europe rebounded in the third quarter, in a sign the Eurozone economy may finally be responding to the European Central Bank’s (ECB) ultra-low interest rates.
The cost of labour in the Eurozone rose by 1.5 per cent, while workers’ pay in the broader EU was driven higher – by 1.9 per cent – by strong growth in Eastern Europe.
Workers in the industrial sector and construction enjoyed strong pay rises of 1.7 per cent and 2.0 per cent respectively, although the services sector underperformed slightly, with 1.2 per cent wage growth.
Croatian wages fell over the period, but Italian wages posted perhaps the most notable performance, with a decrease in wages of 0.5 per cent. Third-quarter figures do not take into account any possible uncertainty surrounding the Italian constitutional referendum result.
The strongest wage growth was recorded by Romania and the Czech Republic, at 14.7 per cent and 9.0 per cent respectively.
The UK was slightly below average, with an increase of 1.4 per cent in the third quarter – sharply down from wage growth of 2.6 per cent in the second quarter.
Wage growth had fallen sharply in the first half of the year, after hitting a quarterly increase of 2.4 per cent at the end of 2015.
Earlier this month the ECB reduced the scale of monthly asset purchases – quantitative easing – but emphasised that its policy remained accommodative by historical standards.
Inflation has started to increase over the past year from periods of disinflation and stubbornly low levels. Increases in wages – which can contribute to inflation – will be welcomed by workers and policymakers alike.
Howard Archer, chief UK and Europe economist at IHS Markit, said: “A rise in Eurozone wage costs and total labour costs in the third quarter of 2016 may fuel hope within the ECB that underlying Eurozone inflationary pressures may just be starting to pick up.
“The ECB has been frustrated and disappointed by the lack of a pick-up in underlying Eurozone inflation in recent months, even though the headline consumer price inflation rate has picked up,” he added.