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Wage growth that will be essential to helping the European Central Bank reach its inflation target may not emerge until “a relatively late stage in the economic expansion”, according to the bank’s chief economist.

Speaking in Brussels on Thursday, Peter Praet said “wage growth has to be stronger” to achieve a sustained improvement in underlying inflation levels, but he warned that “it is not easy to predict how quickly” wages will pick up, despite the increasingly strong economic recovery.

ECB president Mario Draghi has in recent months highlighted strong job creation as a key measure of the success of its stimulus policies, as unemployment across the currency bloc fell to its lowest level in eight years.

However, Mr Praet said that a strengthening labour market could attract “marginally attached” workers – who are often missed from official unemployment figures – back into the workforce, or encourage underemployed workers to seek more hours, meaning the supply of available workers rises alongside demand. In this case, there will be less incentive for employers to offer higher wages.

Research by Bank of America Merrill Lynch released last week highlighted the potential scale underemployment in particular, noting that “the improvement in the quantity of jobs [in the eurozone] has been offset by a significant deterioration in their quality” since the financial crisis.

Photo: Reuters

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