September 15, 2017 / 9:15 AM / a year ago

Euro zone wage growth hits two-year high in second quarter

BRUSSELS (Reuters) - Euro zone wages grew at their fastest rate in two years in the second quarter, data released on Friday showed, providing some comfort for the European Central Bank in its search for a pick-up in inflation.

Construction workers prepare concrete formworks in front of the TV tower in Berlin, Germany, August 10, 2017. REUTERS/Hannibal Hanschke

Hourly labour costs rose by 1.8 percent in the April-June period, from a revised 1.4 percent in the first quarter, its highest growth since the first quarter of 2016, EU statistics office Eurostat said.

Wages were 2.0 percent higher year-on-year in the second quarter from 1.3 percent in the first, the highest rate since the first quarter of 2015.

Weak consumer price inflation is a particular problem for the ECB as it has undershot its nearly 2 percent inflation target for over four years despite unprecedented stimulus and will not reach its goal before the end of the decade. The rate was 1.5 percent in August.

It is now debating whether to ease back on stimulus, a decision likely to come in October, accepting that more patience is needed to lift inflation.

The ECB is keeping a close eye on wages, hoping that robust economic growth and rapid job creation will finally push earnings higher and give inflation a badly needed boost.

Although employment has increased by nearly seven million since its trough in 2013, wage growth has been barely visible for years, a puzzling development for policymakers that suggests sizable hidden unemployment.

It may also signal that globalisation has diminished central banks’ control over inflation as supply, demand and labour markets become international.

Wage talks by IG Metall, Germany’s biggest union with 2.3 million workers, will be keenly watched by policymakers as the deal will influence wage setting across several key sectors in the euro zone’s biggest economy. Although the union will publish its initial demands in October, no deal is expected until early next year.

For full details of Eurostat data click on:

Reporting by Philip Blenkinsop and Balazs Koranyi

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