The inflationary current that has been established in the economy for months is being transferred to labor costs. According to Statistics National Institute (INE) in the first quarter, the cost per hour worked increased by 4.6%, in its seventh consecutive quarter of growth. There has not been such a significant increase since 2020, when during this indicator it increased at a rate of more than 8%.
In fact, there are a number of sectors in which the rate is advancing at a particularly significant pace. In the first three months of 2023, for example, groups such as the extractive industry or the supply of electricity, gas, steam and air conditioning registered increases that came to exceed 9% year-on-year. Only one sector, financial and insurance activities, suffered setbacks in the first quarter of 2023. Specifically, it fell by 5.8%.
The growth rate of the cost per hour worked has been rising in recent quarters. Specifically, the increase registered between January and March is the most significant in seven quarters, when this indicator began to rebound. The last time a decline was recorded was in the second quarter of 2021.
‘Second Round’ Inflation
Although the general rate of inflation has been easing for a few months, the tension on costs per hour worked could continue in the coming months, taking into account the revision of agreements, which is transferring part of last year’s inflation to wages.
Economists have called attention to this effect, known as second-round inflation, which encourages inflation rates to stay above their historical average and complicates the work of the European Central Bank (ECB) when establishing interest rate increases that are balanced between controlling the rise in prices and their economic impact.
The president of the organization, christine lagardehas been repeatedly sending out messages that core inflation continues to be a problem for the central bank to control, and this despite the fact that the euro zone economies are sending messages of weakness.
In fact, analysts continue to forecast rate hikes in the Eurozone. One of the latest to have updated its estimates is Natixis, which anticipates that the European body has more hikes left than the Fed.
