Euro zone: The transition from wage increases to core inflation

In the euro zone there is still a link - although it has become weake r - between the labour market situation and wage growth and unit labour costs: companies' hiring difficulties have led to an acceleration in wages and unit labour costs (given the low productivity gains), a situation that differs from that in the United States. Yet, core inflation is not rising at all in the euro zone. Companies in industry as in services are unable to transform increases in unit labour costs in to increased selling prices, which shows the ir lack of pricing power that normally is due to fierce competition (external in industry, domestic in services). It is therefore the functioning of goods and services markets that explains the absence of inflation in the euro zone, while the explanation is the functioning of the labour market in the United States.