New central-bank data suggest salaries are not accelerating despite the energy shock, easing fears of a wage-price spiral while leaving another interest-rate increase firmly on the table.
FRANKFURT — Wage pressures across the eurozone are remaining broadly stable, according to new European Central Bank data that may offer policymakers a measure of relief as they confront renewed inflation risks from high energy costs.
The ECB’s wage tracker, published on July 29, indicates that negotiated salaries excluding one-off payments are expected to increase by approximately 2.6% in 2026 and 2.7% in the first quarter of 2027. The indicator that includes unsmoothed bonuses and other exceptional payments shows the same annual rates, suggesting that newly signed labour agreements have not produced a significant acceleration in pay demands.
The result is important because wage negotiations are one of the clearest indicators of whether an external price shock is becoming embedded in the broader economy. Higher oil and gas prices can initially raise transport, electricity and production costs. But inflation becomes more persistent when employees demand substantial compensation and companies respond by increasing prices again, creating a cycle of rising wages and consumer costs.
For now, the ECB’s figures provide little evidence that such a cycle is developing. Its headline tracker, which distributes one-off payments over a 12-month period, shows negotiated wage growth rising from 1.8% in the first quarter of 2026 to 2.6% in the second half of the year. However, the central bank said this increase largely reflects the statistical effect of earlier inflation-compensation payments fading from the calculations rather than a fresh surge in permanent salaries. Base-wage growth remains close to 2.6% throughout the year.
The data arrive at a sensitive moment for European monetary policy. On July 23, the ECB left its deposit rate unchanged at 2.25%, following an increase in June. It warned that energy prices remained well above the levels recorded before the latest Middle East conflict and that the full inflationary consequences of the shock had not yet emerged. The bank said future decisions would continue to be taken meeting by meeting rather than according to a predetermined interest-rate path.
Stable wage growth strengthens the argument for patience. Raising interest rates can restrain inflation by making mortgages, corporate loans and consumer credit more expensive, but it can also weaken investment and household spending. If energy inflation is not spreading into salaries and underlying prices, the ECB may have more time to evaluate incoming data before imposing further borrowing-cost increases on an already fragile economy.
Nevertheless, another rate rise remains a realistic possibility. Renewed pressure on oil and natural-gas markets has kept inflation concerns alive, and financial markets have continued to anticipate additional monetary tightening beginning in the autumn. ECB President Christine Lagarde has said policymakers are not yet seeing the second-round effects traditionally associated with a wage-price spiral, although the bank remains alert to the possibility that prolonged energy disruption could eventually change the behaviour of workers and businesses.
The broader economic picture is similarly mixed. A recent business survey showed that eurozone activity returned to expansion in July for the first time in four months. The flash composite purchasing managers’ index rose to 51.9 from 50.0 in June, comfortably above the dividing line between expansion and contraction. New orders increased, manufacturing output reached its strongest level in more than four years and services activity recovered after three months of decline.
That improvement, however, remains vulnerable. Export orders continued to decline, manufacturing employment was still being reduced and higher energy costs could quickly undermine the recovery. The eurozone economy contracted by 0.2% in the first quarter of 2026, leaving policymakers with little room for an aggressive campaign of interest-rate increases without risking further damage to growth.
The latest wage figures therefore present the ECB with a more manageable, but not necessarily easier, policy dilemma. Pay settlements suggest that inflation expectations among workers remain relatively contained. At the same time, energy markets, geopolitical tensions and the uneven condition of European industry continue to threaten both price stability and economic activity.
There are also limitations to the data. The wage tracker covers active collective agreements in nine participating eurozone countries and represents approximately 44.3% of covered employees for 2026. Coverage falls to 28.4% for the first quarter of 2027 because fewer future agreements have yet been signed. The ECB cautions that the tracker is subject to revision and should not be treated as a formal wage forecast. Its broader projections anticipate that total compensation per employee will increase by 3.2% in 2026.
Even with those qualifications, the message from Europe’s labour market is significant: workers have not yet responded to the latest inflation shock with sharply higher wage demands. That may allow the ECB to delay its next move and wait for clearer evidence. But with energy costs still volatile, the period of calm could prove temporary—and the decision facing policymakers in the autumn remains finely balanced.
