Europe labor-cost rise is fastest in more than a year

Wages in the dozen euro nations rose at the fastest pace in more than a year in the Q2, underscoring the European Central Bank's concern that increased pay for workers may fan inflation. Labor costs gained 2.4% from a year earlier, compared with a 2.2% increase in the prior quarter. It was the sharpest gain since a 2.8% rise in the Q1 of 2005, the EU's statistics office said in Luxembourg today. Economists expected an increase of 2.3%, according to the median of 13 forecasts in a Bloomberg News survey. While wage increases were still around the same rate as inflation, European Central Bank President Jean-Claude Trichet has expressed concern that workers may be able to bid up pay as faster economic growth brings down the jobless rate. The central bank has raised its benchmark rate by 1 percentage point to 3% since December and signaled it may increase it again next month. „The danger is that as employment picks up, wage pressure will start to rise,” said Dario Perkins, an economist at ABN Amro in London. „The ECB has told us they won't wait for this to materialize. We see rates going to 4%.” Employment in the euro area increased by 0.4% in the Q2, the statistics office said in a separate report today. German metalworkers' union IG Metall, Europe's largest manufacturing union, is seeking a 7% pay increase this year, the highest demand in 14 years.

Average salaries the world over will rise more than inflation next year, a survey by Mercer Human Resources Consulting showed yesterday. In Europe, wages will rise 3.7% in Italy, 3% in France and 2.3% in Germany, according to the survey. The ECB predicts the inflation rate will be 2.4%. The International Monetary Fund today raised its forecast for euro-area growth to 2.4% from a 2% estimate in April. The jobless rate fell to 7.8% in July from 8.9% in September 2004. Inflation in the euro area has exceeded the ECB's 2% ceiling for 18 consecutive months. Trichet said on Sept. 9 that the bank would exercise „strong vigilance,” a term he has used over the past year to signal a rate increase is imminent. The next decision is Oct. 5. (Bloomberg)