The ECB has expressed the expectation that wages in the EU will rise very strongly in the coming quarters. Based on this wage growth, it’s also clear where inflation is heading, and according to BNR in-house economist Han de Jong, that means further interest rate hikes are in the offing.
However, De Jong talks about the good news that wages are rising. “If wages didn’t go up, your purchasing power would drop dramatically,” he says. “Inflation is high and fortunately it’s coming down a bit, but it’s still high. Dutch statistics reported just last week that wage increases under collective bargaining agreements in the Netherlands reached a record high last year.’
According to De Jong, this was a figure of 3.2%, against an inflation rate of around 10%. “So it’s a significant drop in your real wages,” he continues. ‘But last year was also special, because inflation actually increased unexpectedly. And in a year like that you see that wage increases often lag behind».
Employer organizations
De Jong therefore argues that if you look at the figures from employers’ organizations such as AWVN, you can see that wage increases of around 3% were agreed in the new collective bargaining agreements at the beginning of last year. ‘And by the end of 2022, it had risen from 5 to 6 percent. So you don’t have to be an Einstein to realize and predict that the wage increase will stay this high for the time being, or might even increase.’
And therefore an increase in interest rates is necessary, thinks De Jong, to avoid a wage-price spiral. “In my opinion, the ECB started raising interest rates too late,” he continues. ‘I think people like Klaas Knot wanted to raise interest rates earlier but were turned down by their peers. What you see lately is that they are very shocked by high inflation and people like Knot are in the majority. They are now in charge within the ECB, so they want to go ahead with the interest rate hikes.’ According to De Jong, the economy will suffer, “but the goal is to bring inflation under control”.
“Strong job market”
The ECB also speaks of a ‘robust labor market’ which would have been little affected by the economic slowdown, allowing for wage increases. De Jong stresses that we must remain vigilant. ‘The job market is really solid. There is a labor shortage only in the Netherlands and unemployment in the EU is at its lowest level since the introduction of the euro in 1999,’ he concludes. “If we go into a recession – which is very likely – unemployment will rise again.”
He concludes: “This is annoying for people who lose their jobs, but it’s better to lose your job when there are few others unemployed than when there is mass unemployment.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
