European Central Bank's Rehn said wage growth remains moderate and shows no second-round inflation effects, a signal that price pressures may be easing.
What Rehn said
Rehn's comments, made in a recent appearance, point to a labor market that is not adding to inflationary pressures. Moderate wage growth means workers are not demanding large pay increases, which could otherwise push prices higher. The absence of second-round effects suggests that any initial price shocks are not feeding through to wages and then back to prices.
Why wage growth matters
Wage growth is a key indicator for central banks. If wages rise quickly, consumers have more money to spend, which can drive demand and push prices up. But if wage growth stays moderate, the risk of a wage-price spiral diminishes. Rehn's assessment suggests the ECB sees limited risk of that spiral taking hold.
The lack of second-round effects is particularly important. It means that the initial surge in inflation, driven by energy and supply chain issues, is not becoming entrenched in the economy. Workers are not seeking compensation for higher prices, which would keep inflation elevated. This could give the ECB more room to pause its rate hikes.
The ECB's next policy decision will depend on incoming data, including wage figures. Rehn's comments offer a snapshot of the central bank's thinking, but they do not commit to a specific course of action. The coming months will show whether wage growth remains as moderate as Rehn suggests.
