Minimum wages, maximum impact? Unpacking inflation trends in the EU

Purpose This study examines the impact of minimum wage increases on inflation in 21 European Union countries from 2003 to 2022. Design/methodology/approach The study uses a panel data methodology for 21 EU countries over 2003–2022, based on Eurostat data. The analysis adopts the New Keynesian Minimum Wage-Augmented Phillips Curve framework. Using an econometric framework, the model examines overall (HICP), food, and services inflation, controlling for GDP growth, unemployment, and oil prices. Findings A 1 p.p. rise in minimum wage growth increases overall inflation by approximately 0.075 p.p., food inflation by 0.10 p.p. and services inflation by 0.088 p.p. The effects are stronger for food inflation, service-sector inflation, new member states, and countries with a low minimum-to-average wage ratio. Originality/value This study is the first to combine the minimum-wage-augmented Phillips curve with a panel framework for EU countries, providing a comprehensive and comparative evaluation of minimum-wage pass-through into inflation across 21 member states. It highlights strong heterogeneity between old and new EU members, across sectors, and over time.