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2026-09-16 17:56:08
[Eurozone Wage Growth Slows, Inflationary Pressures Under Control] ⑴ Eurozone wage growth continued to slow last quarter, despite a slight rebound in inflation and negotiated wage contracts indicating only a modest acceleration next year, providing reassurance to ECB policymakers that inflation remains under control. ⑵ The ECB is closely monitoring wage trends to determine whether the recent surge in energy price-driven inflation is fueling excessive wage demands, which could trigger a difficult-to-break wage-price spiral, requiring more aggressive policy tightening. ⑶ The ECB has raised interest rates twice this year but has indicated that only moderate tightening is needed, as the current inflationary shock is far less severe than in 2022, when price increases exceeded 10% and the central bank's response was lagging. ⑷ Eurostat data released Wednesday showed that the annual increase in labor costs slowed to 3.1% in the second quarter from 3.3% three months earlier, after exceeding 5% at the peak of the 2022-2023 inflation crisis. ⑸ Other ECB data indicates that negotiated wage growth will only rise moderately in the first half of 2027 after remaining largely stable for the remainder of this year. (6) Key ECB indicators show negotiated wage growth at 2.6% to 2.7% by the end of the first quarter of next year, subsequently rising to 2.8%. (7) The ECB has long maintained that 3% wage growth is broadly consistent with its 2% inflation target, and its forecasts earlier this month still indicated that wage pressures would be only moderate given some weakness in the labor market. (8) The ECB's main concern is that high energy costs will eventually drive up the costs of other goods and services, and unions will respond by demanding compensation. (9) However, current data does not show any signs of this, surprising some policymakers.
