FRANKFURT, Feb 20 (Reuters) - Negotiated euro zone wage growth slowed in the final quarter of last year, confirming market expectations that pay growth has peaked although it remains far above a level consistent with 2% inflation, European Central Bank data showed on Tuesday.
The ECB has singled out wages as the single most important variable in determining whether it can start cutting interest rates and call time in its fight against high inflation.
Growth in negotiated wages slowed to 4.46% in the fourth quarter of last year from 4.69% in the previous quarter when it hit the highest reading since the start of the data series in 2005.
The ECB is keeping a close eye on this figure and said that data due in three months, which will contain crucial 2024 collective agreements, will be a key indicator on how far interest rates can decline from record highs.
ECB chief economist Philip Lane has long said that wage growth around 3% would be consistent with a 2% inflation target but pay was likely to rise quicker this year as workers are still recouping incomes lost to inflation.
Since consumer price growth is now below 3%, wage growth in excess of 4%, as forecast by the ECB, points to a rebound in real incomes.
"It’s only a small tick down, but broadly in line with expectations that negotiated wage growth will start to trend down over the course of 2024," ING economist Bert Colijn said.
"We expect to see a more meaningful decline in nominal wage growth before the summer," Colijn added.
Reporting by Balazs Koranyi Editing by Alexandra Hudson
Source: Reuters