Rising inflation hits European real terms wages

Although real terms wages are still on the up, increasing inflation levels means pay growth is lower than in 2016.

Rising inflation rates across Europe mean that real wage increases will be lower this year than in 2016, according to a study.

Risk management, insurance brokerage and advisory company Willis Towers Watson’s ‘Salary Budget Planning Report’ revealed that the average real terms pay rise across the European Union’s (EU) 28 nations is currently 0.9% compared with 2.6% last year.

While average pay increases were 2.7% in both 2016 and 2017, inflation has jumped from 0.1% last year to 1.7% this year, which has had a significant impact on take-home pay.

The lowest salary hikes in 2017 when adjusted for inflation were experienced in Spain, which saw flat growth, followed by the UK at 0.1%. The biggest beneficiaries were workers in Ireland at 1.9% and Germany and Denmark at 1.2%.

Paul Richards, Willis Towers Watson’s director of data services, said: “In the European labour market, real terms wages are still growing in 2017, but rising inflation means those real wage increases are less generous overall than in 2016.”

For example, while workers in around 82% of EU countries will receive 2017 pay rises that are either roughly the same or higher than last year’s, once inflation is taken into account, any increases will be wiped out, he added.

“In 2018, inflation will remain a factor and the wage picture will be quite mixed across Europe,” Richards said. “While nearly all of the EU28 will get a pay rise in 2018, only 11 countries will see a rise that is higher than in 2017.”

The hardest hit employees will be in Slovenia (-0.3%), followed by the UK (0.1%), while Italian (1.7%) and German (1.5%) staff will be the least affected.