Eurozone: Low wages for longer, ECB's conundrum stronger - Rabobank

Analysts at Rabobank explain that so far, none of the ECB’s self-imposed criteria for inflation have been met and signs of second-round effects following the surge in headline inflation since mid-2016 remain scant.

Key Quotes

“We look into a number of cyclical and structural explanations as to why this might be the case

• Besides the observation that there may simply be more slack in the labour market than suggested by the headline unemployment numbers, we also conclude that the bargaining power of labour has significantly declined over the past decade.
• As this is likely to be structural in nature, the long-awaited pickup in wage growth may take even longer than the ECB has been hoping for.
• This is unlikely to deter the ECB from winding down QE next year on technical grounds, but it is likely to prevent it from hiking their deposit rate in 2018.”