Euro area labour costs rise less than expected

Hourly labor costs in the Euro Area rose by 3.4% year-on-year in Q1 2025, marking the smallest increase since Q3 2022 and signaling a potential easing of wage-driven inflationary pressures.

This compares with a 3.8% rise in the previous quarter, suggesting a gradual cooling in labor cost growth. The wage component also increased by 3.4%, its slowest pace since Q3 2022, down from 4.1% in Q4 2024. In contrast, the non-wage component—which includes social contributions and other labor-related expenses—accelerated, rising by 3.4% compared to 2.7% previously, indicating upward pressure from ancillary employment costs.

Across economic sectors, industry saw the smallest labor cost increase at 2.5%, down sharply from 4.2% in the prior quarter, possibly reflecting easing demand or productivity gains.

The services sector, however, posted a 4.3% rise, up from 3.8%, while the construction sector recorded the largest increase at 4.7%, compared to 4.2% previously—potentially driven by labor shortages and high demand. Overall, the data points to a mixed picture for wage pressures across the Euro Area, with signs of moderation in some sectors even as others experience renewed cost growth.