Euro zone labour costs jump 5.7% y/y in Q4

BRUSSELS (Reuters) -Euro zone labour costs jumped in the last three months of 2022 and third-quarter data was revised up as well, but the rise of the wage component was still roughly half the increase in consumer inflation, data showed on Friday.

The European Union’s statistics office Eurostat said labour costs in the 19 countries that shared the euro in the last quarter of 2022 rose 5.7% year-on-year, with wages up 5.1% and non-wage labour costs up 7.7%.

Labour costs were revised upwards to 3.7% year-on-year from 2.9% reported earlier and wage growth to 3.0% from 2.1%

Consumer inflation was 9.2% year-on-year in December, down from 10.1% in November and 10.6% in October, giving an average of 10% for the quarter.

Euro zone wages grew fastest in construction, up 6.5% in the fourth quarter against the same period of 2021, followed by services, where pay rose 5.7% with industry up only 4.4%.

The ECB watches labour costs to determine how much of the energy price shock caused by the Russian invasion of Ukraine filtered through to other areas of the economy and whether rampant inflation becomes entrenched by increasing so-called core inflation, which excludes volatile energy and food prices.

In February, core inflation rose to 5.6% year-on-year from 5.3% in January, setting itself on a trajectory to match the higher costs of labour, in a sign the ECB may need to be more determined with rate increases to bring it down.

Headline inflation is seen averaging 5.3% this year, 2.9% in 2024 and 2.1% in 2025, the ECB said, adding that these projections were finalised before the current turmoil linked to the collapse of the SVB bank in the United States and share price troubles of Credit Suisse in Europe.

ECB policymakers have said that wage growth in the 5-6% range this year still only represented a catch-up after inflation eroded the real value of incomes, but such wage growth was still inconsistent with the ECB’s 2% inflation target.

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