Central Bank research suggests pace of wage growth may have peaked

The pace of wage growth in the Republic has slowed sharply since the summer, reducing the risk of a wage-price inflation spiral, a new study from the Central Bank suggests.

Data from thousands of job advertisements on the recruitment website Indeed.com that were analysed by Central Bank researchers showed wage growth remained high last month at 4.6 per cent. But the rate of growth has slowed considerably since the summer, when it was 5.2 per cent.

Reamonn Lydon, who carried out the research along with Indeed researcher Pawel Adrjan, said much of the wage growth pressure in Ireland “seems to have peaked”. He said the data suggest that much of the wage growth in the summer was driven by the return to full post-pandemic capacity of sectors such as hospitality, which rushed to recruit workers. But the pace has fallen off.

“It’s very early but that data suggests that this doesn’t look anything like a wage-price spiral,” said Mr Lydon. “You’ve also got to take into account that the Indeed data shows hiring wages, which tend to be higher than other wages overall. If the rate of growth in hiring wages is declining, that suggests that, if there is going to be a wage-price spiral, it isn’t showing itself yet.”

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The Central Bank in conjunction with Indeed has set up a monthly tracker charting wages in the US, the UK and six euro zone countries, including Ireland. The November rate of 4.6 per cent in Ireland compared to 6.9 per cent in Germany and just 3.9 per cent in the Netherlands and Spain. The average of the euro zone countries the study tracks was 5.2 per cent in November.

The researchers suggested the pace of wage growth across all the economies tracked is now showing “early signs of peaking”. However, the trend is most pronounced in the UK and especially in the US. Growth in the US is still 6.5 per cent, but that is way below the roughly 9 per cent peak of early 2022. The researchers suggest that the US’s rate of wage price growth could return to pre-pandemic norms by the second half of 2023, while wage demands in Europe may also ease.

“A lot of the heat has gone out of the US. When that happens, as night follows day, that trend usually eventually follows in Ireland too,” said Mr Lydon.