Real incomes squeezed as wage growth fails to keep up with rising prices

Average weekly earnings across the whole economy for private and public employers rose by just over 2% in the final three months of 2023

Economist Jim Power said the CSO wage growth figures mark a squeeze on real incomes.

The squeeze on real incomes has continued, as wage increases across the private sector is outpaced by rising prices, CSO figures suggest. 

Average weekly earnings across the whole economy for private and public employers rose by just over 2% in the final three months of last year from the same period a year earlier, the figures show. 

Private sector weekly earnings annual growth of 3.5% in the three months slowed from the previous three months across the 13 sectors of the economy, according to the figures. 

However, real incomes were squeezed further when the high rates of consumer price inflation are taken into account. 

Price inflation, although cooling from the annual rate of just over 5% in October, was still running at an annual 4.6% in December, meaning that private sector wage increases were not keeping pace with hefty price increases. 

Economist Simon Barry said base effects from the public sector wages agreement of 2021 to 2022 somewhat distorted the reading for wages growth across the economy, but that wages growth for private sector employees nonetheless was not sufficiently robust to compensate for price increases in the latest quarter. 

A fall in the number of job vacancies in the final three months of 2023 also suggest that the record-breaking performance of the Irish labour market may be cooling for private sector jobs, Mr Barry said.  

Economist Jim Power said that the wages growth figures marked a squeeze on real incomes. 

"That is one of the surprises that in an economy at virtually full employment and 2.7m people in employment that there has been no significant pressures on wages growth," Mr Power said. 

"Maybe, it reflects weak trade unions and economic uncertainty, and I am not surprised that private sector unions are looking for catch-up wage demands," he said. 

Mr Power said wages growth across the eurozone surprisingly "hasn't been stellar either", which means that  European Central Bank (ECB) qualms against cutting interest rates at an early stage are probably misplaced, he said.

ECB policymakers, including Central Bank governor Gabriel Makhlouf,  have said in recent weeks they will be guided by wages data for the eurozone in coming to a decision about rate decisions. 

ECB president Christine Lagarde said earlier this week that the retreat in inflation in the eurozone will continue but that she and her colleagues still need to see more evidence that price growth is returning to their goal. 

Ms Lagarde had told MEPs in Starsbourg that pessures remain strong, reiterating that salaries will likely become an increasingly important driver of price dynamics in the coming quarters. 

“The current disinflationary process is expected to continue,” Ms Lagarde said on Monday at a plenary debate on the ECB’s 2022 annual report. 

“But the governing council needs to be confident that it will lead us sustainably to our 2% target," she said.

The ECB's governing council meets next week in Frankfurt for its decision on interest rates. 

Ms Lagarde's media comments following the March 7 gathering which will be closely tracked.