Eurozone wages on course for ‘solid’ rise but inflation higher, says commission

The EU’s wages commission said workers in the eurozone are expecting an average increase of 2.2% this year, better than the 1.9% inflation rate predicted for the same period. Wages on average have gone…

Eurozone wages on course for 'solid' rise but inflation higher, says commission

The EU’s wages commission said workers in the eurozone are expecting an average increase of 2.2% this year, better than the 1.9% inflation rate predicted for the same period.

Wages on average have gone up by 3.9% in the last year – way ahead of inflation, which was 1.2% in January. These wage increases mean workers are expecting an average €2,325 salary in 2018, far ahead of the €2,034 inflation has forecast.

But the Commission thinks the increase may be over-optimistic. In its latest forecasts released on Wednesday, it forecasts inflation at 1.9% by year-end and rises from there to 2.3% in 2019 and 2020.

This has led to a rise in the wages commission’s expectations for this year. It has predicted an average salary of €20,200 for the eurozone, which is €800 more than in 2017. However, the figure includes the increased tax taken by employers and workers, as well as the hit from the exchange rate.

“Pay growth will remain solid this year but remain flat in 2019 and then contract between 2020 and 2022,” said Emmanuele Verheugen, head of the jobs division at the commission.

The European Commission has calculated that if the eurozone’s inflation rate were at the same rate as other major economies, wages would be €3,975, instead of the expected €2,325.

The battle over rising prices comes just days after the European Central Bank, the governing body of the eurozone, predicted inflation in the single currency area would grow faster this year than previously thought.

The central bank predicted that inflation would rise from 1.7% in 2017 to 2.1% this year, compared with its January forecast for it to rise from 1.7% to 1.9%. Its new projections were released on Thursday.

“We need to ensure that inflation and wage pressures are properly captured,” said Pierre Moscovici, the European economic commissioner. “As we are seeing, the unemployment crisis is not being fully tackled and workers are increasingly losing out from growing inflationary pressures.”

The commission warned that the uptick in inflation would increase pressure on the European Union’s governments to increase wages. This is likely to be an important issue at a summit between the heads of state of the EU’s 27 member states on 14 and 15 March.

Wednesday’s figures showed that wages rose by 2.9% in 2017, almost double the rate in 2016. However, there was a regional breakdown: in industrialised countries, the average wage rose by 3.6%, while in emerging economies it rose by 4.3%.

Here again, the report was divided between richer and poorer countries. Only in Slovakia, Slovenia and Estonia did wages rise by more than 6%.

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