The rise in consumer prices within the European Union in 2022, as measured by consumer inflation--the harmonised index of consumer prices (HICP), outpaced the growth in wages and salaries. This resulted in a decline in the purchasing power of households.
The difference between the rates of wage growth and HICP was greatest in Luxembourg: -11.74% in Q3 2022 (with the index Q1 2020 = 100), compared to the EU average of -0.65% during the same period.
Real wages, which refer to the growth in consumer wages across the business economy after adjusting for consumer inflation, turned negative for most EU member states in 2022. Data analysed from Eurostat, the statistical office of the EU, confirms this trend.
The impact of negative real wages in 16 out of 25 member states during Q3 of 2022, excluding Denmark and Sweden due to lack of quarterly data on wages and salaries, is significant. Negative real wages often lead to a reduction in consumer demand, an increase in households at risk of poverty and lower productivity.
At the same time, the European Central Bank has continued to tighten key banking rates with a focus on keeping inflation below 2%. This, coupled with negative real wages and salaries, could have an adverse effect on the business economy.
Despite all of this, unemployment rates have been stable (4.9% as of January 2023) indicating a strong economic environment. Nevertheless, the situation remains uncertain.