Euro-area wages bring good news to ECB policy

By BLOOMBERG

ZURICH • Euro-area wages are on the rise, giving another boost to the European Central Bank’s (ECB) view that it’s the right time to change policy tack.

Collective wages rose 2.2% in the second quarter, the most since 2012, according to updated data. That’s up from 1.7% in the previous three months.

For economists, that’s evidence that the better labour market — unemployment is at the lowest in almost a decade — is starting to feed through more to pay, which should in turn lift inflation.

That’s good news for ECB policymakers in a summer that’s seen Italian bond yields pushed higher by investors’ budget concerns and Turkey descend into a currency crisis that could, if it spreads, undermine sentiment.

The ECB announced in June it was winding down its bond-purchase stimulus programme, in part because it anticipates an improvement in inflation later this year. President Mario Draghi has cited wage growth for this view, noting in particular better negotiated settlements.

“The period of a core inflation rate fluctuating around 1% is probably coming to an end,” said Ralph Solveen, an economist at Commerzbank AG in Frankfurt. “The only question is how fast it will rise.”

There may be more comfort for policymakers today, when flash Purchasing Managers’ Index for August are due to be released.

The composite reading is forecast to have risen slightly, extending the recent stabilisation after a torrid start to the year. The ECB will publish the accounts of its July policy meeting on the same day.