"This might boost hopes that the periphery is regaining competitiveness relative to Germany, while rising wages may also persuade German consumers to spend more"
- James Howat, an economist at Capital Economics
With economy showing signs of improvement, labour market is still a major headache for the European policymakers. Hence, workers in the Eurozone are still suffering a drop in pay in real terms, as wage growth lags the rate of inflation. On Monday the Eurostat said workers' pay advanced 1.1% in the second quarter, from the corresponding period a year earlier, down from a 1.8% annual rate recorded in the prior quarter and the slowest pace since the third quarter of 2010. Meanwhile, consumer price growth decelerated to 1.3% annually in August, from 1.6% registered in July. The latest reading is still underneath the central bank's target area of a 2% target level. Despite weak figures, Eurozone authorities are expecting lower costs faced by companies will make exports more competitive, reducing some of the enormous gaps in wealth between Eurozone economies.
Meanwhile, Merkel's sister party the Christian Social Union regained an absolute majority in the state parliament, while Merkel's coalition partner FDP posted a humiliating defeat, raising concerns the coalition may fall short of an outright majority. The latest results are expected to give on Sunday the CSU party almost 49% of the vote. The second strongest party- the Social Democratic Party is now likely to get around 21% support, a figure slightly higher from the previous state election in 2008.
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