Euro area’s jobless rate falls in January but still too high to boost wage growth

Euro area's January jobless rate dropped further; however, it is still too high to boost wage growth from its subdued pace recorded recently. The currency bloc's jobless rate declined from 10.4% to 10.3%, the lowest level since August 2011 and better than the forecast of the rate to remain flat. On basis of country, jobless rate fell in Germany to 4.3% from 4.4%. A more timely national data of Germany indicates that the rate dropped further in February.

The unemployment rate in Italy also declined t o 11.5% from 11.6%; however, revisions to past data suggests that this rate was still more than expected. Meanwhile the rate in Spain rebounded further, but is still very high at 20.5%, whereas the jobless rate in France increased to 10.2% from 10.1%.

However, the euro area's jobless rate continues to remain too high to create significant inflationary pressure despite the decline in January's rate.  The rate is still much above the 1999-2007 average of 8.8%. Furthermore, the business surveys of euro area imply that the rebound in the labor market is slowing down. The EC survey's and PMI's employment indices have declined in 2016 to the levels consistent with annual employment growth of between 0.5% and 1% that will see the jobless rate fall.

However, in order to stimulate wage growth, unemployment needs to decline more sharply. In spite of a drop in unemployment, annual growth in hourly wage costs decelerated to 1.6% in Q3 from 2% in Q2. In order to reach the inflation target in medium term, the ECB has a lot more work to do.