Eurozone Q4 2016 Hourly Labour Costs Rose Annual 1.6%

Eurozone hourly labour costs rose 1.6% in the year to the fourth quarter from 1.4% in the third quarter.

Wages and salaries rose 1.6% over the year from 1.5% previously while the non-wage component rose an annual 1.5% compared with a 1.0% increase in the third quarter.

There was a slight easing of competitive pressures with the increase in the business sector rising to 1.7% in the fourth quarter from 1.3% previously. There was also a significant strengthening in the construction sector with 2.3% growth from 1.8% previously.

There was an increase in labour costs of 3.0% for Germany after a 2.3% increase the previous quarter, reinforcing expectations of higher German inflation while there was further stagnation in Italy with no change over the year while Greece costs declined.

Unit labour costs will be a very important focus for the ECB over the next few months.

Although there has been a sharp increase in headline inflation to the 2.0% area, the primary driver has been the increase in energy prices with the impact magnified by the impact of base effects given that energy prices fell sharply at the beginning of 2016.

The ECB has played down the increase in inflation with an insistence that underlying inflation pressures remain weak. If increases in wages and labour costs remain weak, there will be a much reduced potential for an increase in underlying inflation. Any sharp increase in wage costs would, however, increase the probability of higher inflation and also increase concerns surrounding second-round inflation effects.

The data overall suggests only a very slow increase in the pace of labour costs which will support a gradual ECB move away from a very aggressive monetary policy, but with no move to any significant tightening.

Euro-zone Labour Costs


Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.