FT: Workers across developed countries face fresh real wage decline

Workers across several advanced economies are once again seeing their wages fall behind inflation as the energy shock triggered by the Iran war disrupts supply chains, drives up fuel prices and threatens a fragile recovery in household incomes, Financial Times reports.

Consumers in the United States, the United Kingdom and parts of Europe are facing rising costs for petrol, air travel and other essentials following the closure of the Strait of Hormuz, a key global energy transit route. Economists warn that the renewed pressure on household budgets could weaken consumer spending and slow economic growth.

In the United States, inflation climbed to an annual rate of 3.8 percent in April, while average hourly earnings rose by 3.6 percent over the same period, marking the first time in two years that prices have increased faster than wages.

“The war is roiling supply chains and will push prices higher [than] before, even if the strait were to open tomorrow,” said Diane Swonk.

British workers are also facing mounting pressure. Real wage growth excluding bonuses slowed to just 0.1 percent in the three months to March and is expected to turn negative in the coming months amid weak hiring conditions and rising inflation.

In the eurozone, the crisis represents another setback for workers still recovering from the inflation shock of 2022. Claus Vistesen said he expected real wage growth across the euro area to remain close to zero in 2026 and warned that it could already be “deeply negative” in countries such as France.

Economists say policymakers now face two major risks: weaker consumer spending as households cut back on purchases, and the possibility that workers will demand higher pay, fuelling longer-term inflation.

Michael Feroli said the current decline in real wages was “all about the Middle East conflict” and predicted wages could recover if the Strait of Hormuz reopens and energy prices ease.

However, Swonk warned that persistently high inflation would “narrow profit margins and take a toll on hiring,” adding: “It is in that way that persistent bouts of inflation become a labour market problem.”

Analysts also warned that while the current shock remains smaller than the 2022 energy crisis, it is increasingly likely to push the eurozone into a mild recession.

By Vafa Guliyeva