Yet only a relatively small number of wage contracts have been renegotiated since inflation started to increase strongly in the second half of 2021. The strength of the wage channel depends on the relative bargaining power of labour. And that bargaining power is arguably strengthening. Labour market conditions in the euro area continue to tighten.
In March, the euro area unemployment rate and the unemployment to vacancies ratio – a broader measure of labour market slack – both fell to new record lows (Slide 10, left-hand side). And surveys show that businesses have continued creating jobs at a steady pace in the two months following Russia’s invasion of Ukraine.