German Negotiated Wage Growth Slows in Likely Relief for ECB

• Growth in negotiated wages across Germany slowed in the second quarter (Q2 2024), providing some relief to European Central Bank policymakers and possibly bolstering the case for another interest rate cut in September.
• Negotiated wages rose by 3.1% in Q2 2024 after an alarmingly high 6.2% in the previous quarter, suggesting that inflationary pressure from labour incomes may continue to ease, data from the Bundesbank, Germany's central bank, showed on Tuesday.
• The ECB has long focused on negotiated wages and argues that even if current growth rates are still high, collective agreements already struck point to lower figures in the quarters ahead. Lower wage growth would help bring inflation back down to 2% by next year.
• Still, Tuesday's figures may concern some policymakers as wage growth excluding one-offs, such as bonuses and inflation compensation payments, accelerated to 4.2% in Q2 2024 from 3.0% in Q1 2024. However, monthly figures painted a more nuanced picture with the rate in June down to 4.1% from 4.7% in May.
• Markets currently see a more than 90% chance of a 25-basis-point rate cut in September and expectations were bolstered overnight when Finnish central bank chief Olli Rehn said that weak economic growth may warrant easing next month. The Bundesbank nevertheless warned that wage growth is still quick and focus should shift to wages without the one-offs, since unions continue to demand big pay increases.

(Source: Reuters)