Wage deals key to determining ECB rate path
Workers set to regain some ground lost to inflation
Low unemployment gives unions leverage
Policymakers nervous about effect on prices

FRANKFURT, Jan 18 Reuters Workers in Europe are hoping this year39;s pay round will help restore incomes eroded by higher prices, but the expected boost to their purchasing power could hamper the European Central Bank39;s efforts to bring inflation back to target.

The ECB has singled out wages as the single biggest risk to its 112 year crusade against inflation. It expects salary growth across the euro zone of 4.6 this year, far more than the 3 pace it considers consistent with inflation at its 2 target.

Higher wage settlements would be a risk to interestrate cuts that financial markets are betting will start in April.

We see a path to 3 wage growth but it will be a bumpy road, Reamonn Lydon, an economist at the Central Bank of Ireland and one of the minds behind the popular Indeed Wage Tracker, said in an interview.

Pay hikes increase costs for firms and boost household income, both factors that might push up prices and require the ECB to keep rates high.

Unions see a combination of gradually cooling inflation, low unemployment and fat corporate profit margins as their best and possibly last shot this economic cycle at restoring workers39; living standards.

And after seeing their real wages drop by roughly 5 in 202223 and decades in which labour has lost its leverage wageearners…