ECB Wage Tracker Shows Euro Zone Pay Growth Slowing to 2.6% by 2026
Euro Zone Wage Growth Trends and ECB Policy Implications
Current Wage Growth Data and Trends
FRANKFURT, June 17 (Reuters) - Euro zone negotiated wage growth appears to be slowing as predicted, European Central Bank data showed on Wednesday, offering policymakers relief that the Iran-war-induced inflation surge has not set off a fresh round of pay demands.
ECB Concerns Over Wage-Inflation Spiral
The ECB fears workers will demand compensation for rapid inflation, much like in 2022, triggering a self-reinforcing cycle that can only be tamed through higher borrowing costs.
ECB Wage Tracker Findings
However, the ECB's own wage tracker, which includes data up to the end of May, was unrevised and indicates negotiated wage growth at around 2.6% by end-2026, below the 3.2% last year.
Details on Wage Growth and Inflation Target
The data series with unsmoothed one-off payments shows wage growth for the whole of 2026 at 2.6%, down from 3% a year earlier, said the ECB, which has long argued that wage growth between 2% and 3% is consistent with its 2% inflation target.
Implications for ECB Policy and Market Expectations
Though just one piece in the inflation puzzle, the data may take pressure off policymakers to quickly raise rates again.
Recent ECB Rate Hikes and Future Outlook
The ECB lifted its benchmark rate to 2.25% last week after inflation exceeded 3%, mostly to prevent expectations from rising, and policymakers are now debating whether a follow-up move in July is needed.
Market Expectations for Rate Changes
Markets expect between one and two more rate hikes over the coming year and the next move is fully priced in by October.
(Reporting by Balazs Koranyi; Editing by Alex Richardson and Alexander Smith)
