On Tuesday the final release of April euro-area CPI inflation is expected to match the flash release at 0.0% y/y, confirming that the euro area moved out of deflationary territory after four months. Similarly, core CPI will likely match the flash at 0.6% y/y. Coupled with the highest GDP growth for seven quarters, these would be preliminary signs that the European Central Bank’s measures are working. In the medium term, a sustained period of above-trend growth is needed to shrink spare capacity in the euro-area labour market. Wages are a key indicator of the amount of spare capacity. Germany shows signs of solid wage growth, but weaker countries do not, yet.
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