Wage pressures remain very weak in the Eurozone

Data released from Eurostat showed on Friday that Eurozone's labor costs growth increased modestly to 1.3% y/y in the fourth quarter of 2015 after easing in the previous two quarters. The 0.2 percentage point improvement from Q3 still leaves growth well below the 1.9% growth of the first quarter of 2015.

Labour shortages are very different by country. The highest annual increases in hourly labor costs were seen in Romania, the Czech Republic, Latvia, Bulgaria, Slovakia and Austria, while decreases were registered in Italy, Cyprus, Luxembourg and the Netherlands.

Overall, labour costs did not decline ruling out immediate deflationary spiral symptoms in the economy. However this release confirms that the current wage growth environment is not contributing to faster inflation.

Though unemployment is declining labour market pressures still remain weak. At the current pace of job market recovery, this means it is unlikely that price pressures become stronger before the fourth quarter of 2016.