SSGA: Latest wage data vindicate ECB's early start to rate cuts
In State Street Global Advisor’s Weekly Economic Perspectives, Chief Economist Simona Mocuta concludes that eurozone wage inflation data from Monday 26/8 seems to justify the ECB’s early rate cutting cycle:
'Neither the PMI nor the inflation data released this week changed the narrative on either front. Service activity is holding up, but manufacturing remains weak, with no end in sight to the ongoing contraction. Headline eurozone inflation ticked up a tenth in July to 2.6% y/y; it has moved in a very tight rates of just a couple of tenths over the last six months. This may continue in the near term before ticking higher towards the end of the year on less favorable base effects.
To us, the most interesting release was the update on negotiated wages. When the ECB began the rate cutting cycle in June, we praised it for demonstrating some “guts” in cutting rates at a time of record low unemployment and near record-high wage inflation.
Of course, the ECB did so because it looked to where wage inflation was going, not where it stood in that very moment. Fortunately, the latest data vindicated its action, with the eurozone indicator of negotiated wages taking a big step down.'