The wage data in Lagarde's briefcase

According to ECB President Lagarde, wage growth in the eurozone has at least stabilized.

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Dr. Marco Wagner

Commerzbank Economic Research

February 2 2024

For the ECB's first rate cut and the further interest rate path, it is essential for the ECB Governing Council members that wages rise more slowly. President Lagarde referred to a number of wage indicators at the press conference, which in her opinion reveal a stabilization of wage growth. However, her statements are mainly based on unpublished data. We use charts from chief economist Lane and ECB Governing Council member Schnabel to compile corresponding data series, which suggest that wages will continue to rise strongly rather than slow down. It is questionable whether the ECB will cut interest rates in April as the market expects.

Lagarde speaks of a stabilization of wage growth

Most ECB Governing Council members are confident that inflation is moving in the right direction and is heading towards the inflation target of 2% in the medium term. Even Bundesbank President Nagel is convinced that the ECB has "tamed the greedy beast". If only it weren't for the risk of a further sharp rise in wages! For the President of the Dutch central bank, Klaas Knot, this is the only missing piece of the puzzle for imminent interest rate cuts, which the markets have been expecting for some time anyway. From the comments of the ECB Governing Council members, one can deduce that they first want to see a slowdown in wage growth before they cut interest rates.

At the press conference following the last monetary policy meeting, ECB President Lagarde spoke of indicators that showed a stabilization of wage growth. To anticipate our analysis: Only the Indeed Wage Tracker from the online job portal of the same name (we explain the details of all the wage indicators discussed here in the box) suggests that wage growth has weakened over the summer (title chart). However, the Indeed Wage Tracker only covers wage trends in six Euro zone countries and uses the wages listed in job adverts on the internet platform. For Germany in particular, this data yield is likely to be rather poor and hardly representative. In contrast, the ECB negotiated wages indicator – an official ECB data series – covers the development of collectively agreed wages for the entire Euro zone, and shows no sign of a slowdown in wage increases. On the contrary, wages rose by 4.7% in the third quarter compared to the previous year and thus even more strongly than in the second quarter.

The ECB's internal data treasure

But ECB President Lagarde also has a number of "unofficial" wage indicators in her briefcase alongside this publicly available data. The data is meticulously collected and continuously processed by ECB statisticians, giving the central bankers an almost real-time impression of wage trends in the Euro zone. However, the fact that the ECB does not publish this data is problematic for observers of monetary policy. Even if this is experimental data that is still being further developed conceptually, this contradicts the claim to transparency that the ECB has made for itself. This is all the more true as wages are currently apparently the decisive factor in a possible turnaround in interest rates.

We have used a ruler to measure the various wage data shown in charts in the speeches by Chief Economist Lane and ECB Governing Council member Schnabel and try to categorize them. This is made more difficult by the fact that some of the terminology changes from speech to speech. The description of the content of the data series is also often unclear, e.g. whether they include special payments or not. In the following, we attempt to describe these data consistently and relate them to the data officially published by the ECB.

ECB's own indicators point to continued strong wage growth

Experimental data – and therefore not published as a series – includes the ECB wage tracker. Like the official ECB negotiated wages indicator, this is based on collective labor agreements, shows monthly data and is available to central bankers just a few days after the end of the month. It also shows a high degree of synchronization with the quarterly ECB negotiated wages indicator. According to the ECB wage tracker, wage growth has slowed somewhat since October (Chart 1). However, it is probably premature to speak of a trend reversal here, especially as the December figure is pointing slightly upwards again. A similar pattern was already evident in the summer of 2022 before wages started to rise more quickly again.