Monthly Bulletin April 2008 - European Central Bank - Europa

Looking ahead, the rise in labour cost growth is expected to continue in 2008, as anticipated in the
March 2008 ECB staff macroeconomic projections. This is expected to stem from both a phasingout
of policies aiming at reducing social security contributions and a rise in actual wage growth.
According to preliminary data available at country level, some first signs of an acceleration in wages
have become visible in the first months of the year. This is confirmed by information from the latest
wage negotiations in several euro area countries, against a background of tighter labour markets.
3.4 THE OUTLOOK FOR INFLATION
In the short run, annual HICP inflation is likely to remain at a high level for some time to come. In
the light of the latest oil price developments and ongoing food price pressures, headline inflation
rates are expected to remain well above 2% in the coming months, moderating only gradually over
the course of 2008. Risks to the outlook for inflation over the medium term remain clearly on the
upside. These risks include the possibility of further rises in energy and food prices, as well as of
increases in administered prices and indirect taxes beyond those foreseen thus far. Most importantly,
there is a risk that price and wage-setting behaviour could add to inflationary pressures. In particular,
the pricing power of firms, notably in market segments with low competition, may prove stronger
than currently expected, and stronger than expected wage growth may emerge, taking into account
high capacity utilisation and tight labour market conditions.
40 ECB
Monthly Bulletin
April 2008