Eurozone Consumer Pessimism Ebbs, Wage Growth Damp Hopes Of ECB Easing Beyond June Rate Cut

(RTTNews) - Consumer confidence in the euro area strengthened in May to its highest level since early 2022, while wage growth figures lent support to the view that the European Central Bank is set to stop policy easing with the expected interest rate cut in June.

The flash consumer confidence index rose for the fourth month in a row, climbing to -14.3 from -14.7 in April, preliminary results of the monthly survey by the European Commission showed Thursday. Economists had forecast a score of -14.0 for the month.

The corresponding index for the EU climbed to -13.2 from -13.7 in the previous month. Both index readings were the strongest since February 2022. Consumer confidence still remains below the long-term average, the commission said.

Data for the latest survey was collected from May 1 to May 22. Final results for the consumer confidence index are set to be released along with the monthly economic sentiment survey data on May 30.

Earlier on Thursday, an indicator from the European Central Bank showed that negotiated wages rose 4.7 percent year-on-year in the first quarter, which was faster than the 4.5 percent increase in the previous three months.

ING economist Bert Colijn said the latest increase was unexpected as wage growth is set to moderate, but a catch-up effect in Germany allowed for another increase at the start of the year. "This helps purchasing power to recover more quickly than expected, which should boost household consumption and in turn bolster the cautious economic recovery the eurozone has embarked on," the economist said.

Colijn also pointed out that concerns over how fast wage growth can ultimately come down are likely to add heat to the debate as ECB policymakers gather for the next policy session in two weeks' time. "We don't think that this will deter the ECB from cutting in June - but it likely cements a hold in July," Colijn added.

Commerzbank economist Marco Wagner also thinks the latest data will not prevent the June rate cut, but would cloud the outlook for any easing beyond.

"The latest figures will not prevent the ECB from cutting interest rates for the first time in June, especially as the Governing Council is dominated by doves," Wagner said. "But if wages continue to rise strongly in the coming months and the upside risks for inflation materialize, the current market perceptions, which foresee further interest rate cuts, especially for 2025, are likely to be too optimistic."