Global Wage Growth Deceleration In Major Economies

Major economies witness wage growth slowdown, raising questions about future interest rate cuts.

How is wage growth trending in major economies?

Recent data indicates a slowdown in wage growth across key global economies, suggesting potential shifts in central bank policies. The US, UK, and eurozone have all experienced a deceleration in salary increases, prompting discussions about potential interest rate cuts in the first half of the year.

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Slowing Wage Increases In The US, UK, And Eurozone

According to Indeed's wage tracker, the US saw year-on-year growth in advertised wages drop to 3.8% in December, a decline from a 9.5% peak in late 2021. The eurozone mirrored this trend, with wage growth falling to 3.8% from a 2022 peak of 5.2%. The UK, while maintaining stronger wage growth, also experienced a slowdown, with median pay in job ads rising 6.6% year-on-year, down from a 7.4% peak in June.

Indeed Wage Tracker

Implications For Inflation And Monetary Policy

This moderation in wage growth is a critical factor for monetary policymakers, as rapid wage increases can fuel inflation if companies pass higher costs to consumers. With inflation rates currently at 3.4% in the US, 2.9% in the eurozone, and 4% in the UK, there are indications that price pressures, particularly in the service sector, remain a concern. Investors anticipate potential interest rate cuts by the US Federal Reserve as early as March, followed by the European Central Bank in April and the Bank of England in May, provided inflationary pressures continue to ease.

Indeed's wage tracker, developed with the Central Bank of Ireland and covering countries like France, Germany, Ireland, Italy, the Netherlands, and Spain, reveals varying pay pressures across the euro area. Countries like the Netherlands and Germany are still experiencing strong wage pressures, especially in sectors with recruitment challenges.

The Path Ahead For Wage Growth And Central Banks

Pawel Adrjan, economist at Indeed, notes a broad-based slowdown in most occupations, signaling a turning point in labor markets. However, he cautions that the euro area may see a slower pace of wage growth deceleration compared to the US. This is due to multiyear sectoral pay deals and recent minimum wage increases in some European countries. Philip Lane, ECB chief economist, emphasizes that reaching a wage growth rate of 3% in line with 2% inflation will be a gradual process, requiring careful monitoring of wage settlements.


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