ECB Faces Bumpy Road to Low Inflation As Wages Rise

• Workers in Europe are hoping this year's pay round will help restore incomes eroded by higher prices, but the expected boost to their purchasing power could hamper the European Central Bank's efforts to bring inflation back to target.
• The ECB has singled out wages as the single biggest risk to its 1.5-year crusade against inflation. It expects salary growth across the eurozone of 4.6% this year, far more than the 3% pace it considers consistent with inflation at its 2% target.
• Higher wage settlements would be a risk to interest-rate cuts that financial markets are betting will start in April. Pay hikes increase costs for firms and boost household income, both factors that might push up prices and require the ECB to keep rates high.
• "We see a path to 3% (wage growth) but it will be a bumpy road," Reamonn Lydon, an economist at the Central Bank of Ireland and one of the minds behind the popular Indeed Wage Tracker, said in an interview.
• Unions see a combination of gradually cooling inflation, low unemployment, and fat corporate profit margins as their best and possibly last shot at restoring workers' living standards in this economic cycle.

(Source: Reuters)