Wage Growth Pressures ECB despite 12-Month Inflation Edges Lower

Inflation expectations in the eurozone for the next 12 months eased to 4.9% from 5.0% in February, but expectations for wage growth continued to increase, according to a survey by the European Central Bank.

Data shows that overall inflation is now falling relatively quickly, but a quick raise in nominal wage growth in services signaled that price growth could be stickier than what the ECB had previously expected.

In the meantime, inflation expectations for the next three years fell sharply to 2.5% from an earlier forecast of 3%.

ECB expected to see nominal wage growth around 5% in 2023 at the fastest pace in years. However, the rate is still inconsistent with the central bank’s target of getting inflation down to 2%. This would extend the period of inflation, making it more difficult for the ECB to reach its inflation target.