Homegrown Price Pressures Are Still Weak in the Euro Area

Homegrown Price Pressures Are Still Weak in the Euro Area

(Bloomberg) -- Domestically generated euro-area inflation -- the average of a range of indicators used to assess homegrown price pressure -- has clearly climbed from a trough in 2016, but remains well below the rate consistent with the European Central Bank meeting its target, according to research by Bloomberg Economics. The measure driving up the top end of the swath is unit labor costs -- the only gauge that directly includes wages, suggesting that the euro-area economy has wage pressure, but that’s yet to be fully reflected in prices. Still, that may only be a matter of time: Because the labor share of income is close to pre-crisis averages, companies don’t have huge margins to absorb higher pay demands and will need to pass those costs on to consumers.

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