The pass-through of wage growth to prices is stronger and faster when inflation is higher to start with. The low inflation in the Eurozone has slowed down the transmission. The considerable growth slowdown, on the back of adverse foreign demand and uncertainty shocks, impairs this process even more. This raises pressure on the ECB to take action in order to dislodge core inflation, which remains stuck well below its objective
The different uncertainty measures are sending mixed signals. The Economic Policy Uncertainty Index, which is based on media coverage about policy uncertainty, is no longer increasing but a downward trend has not yet started.
