With wage growth weak, ECB normalisation seems far away

If you’re getting a substantial pay rise this year, lucky you - you’ll be the exception. European Central Bank's president, Mario Draghi, has said wage growth is the new lynchpin for the ECB but economists at ING think we’ll be waiting years for a substantial uptick in people’s pay. And that has big implications for what Europe’s central bank does next.

Since the global financial crisis in 2008, the ECB, and other central banks, have been using extraordinary measures to prop up the economic system. While Draghi is likely going to start “tapering” soon, tapering will not mean tightening. Based on wage growth, we could be waiting an awfully long time before we see significant tightening in the Eurozone.

Both cyclical and structural factors like digitalisation, changing demand for work, and more flexible regulations are keeping wage growth subdued. We think this makes it harder to interpret inflation trends.

Carsten Brzeski, ING’s Chief Economist in Germany and our Senior Economist for the Eurozone, Bert Colijn, are expecting that lacklustre wage growth is here to stay and that because of that, we’re also likely to see below-target inflation for the rest of the decade. Read their report.