Eurozone wage slowdown favours rate cut

The European Central Bank (ECB) is increasingly optimistic that by mid-2025, inflation will decrease to its 2 per cent target, as it anticipates a slowdown in wage growth.

This strengthens the case for lower interest rates, according to ECB board member Piero Cipollone, cited by Reuters.

Cipollone, in his first policy address since joining the board, indicated that the ECB is considering a possible rate cut in June, contingent on positive wage growth news.

He emphasised that wage growth is set to gradually align with inflation targets and productivity growth.

He warned against excessive focus on short-term wage trends, arguing that a rebound in household earnings is essential. Despite this recovery, real wages would still lag behind levels justified by labour productivity growth since the pandemic.

Cipollone also noted that as economic uncertainty diminishes, the ECB’s confidence in its projections, which predict a continued inflation slowdown with the target reached next year, is increasing.