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(Bloomberg) — A key measure of euro-area pay growth slowed, providing some relief to European Central Bank officials worrying about emerging inflation risks from the Iran war.
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First-quarter negotiated wages rose 2.5% from a year ago, the ECB said Friday. That’s below the previous period’s 2.9% reading and far lower than the 5.6% peak in 2024.
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Policymakers are particularly attentive to salaries right now as they search for signs that the war-induced surge in energy costs is spilling over into broader inflation via wages and company selling prices.
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What Bloomberg Economics Says…
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“The deceleration in negotiated wages provides the ECB with some breathing room as it faces a surge in inflation. The latest figure on pay settlements is already lower than the rate that’s consistent with the ECB’s 2% inflation target for the medium term. That will allow the Governing Council to hold off from aggressive monetary tightening as it assesses the second-round effects of the energy shock, which we think will be limited.”
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—David Powell. Senior euro-area economist. Click here for full REACT
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Costlier oil and gas have already pushed price growth in the 21-nation bloc to 3%, significantly above the ECB’s 2% target. With further increases likely, officials have indicated that they’ll consider raising borrowing costs at next month’s meeting.
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Some, however, advocate caution on rates, with medium- to longer-term expectations among consumers and companies still near the ECB’s goal and signs of second-round effects not yet visible. The economy is suffering and could deteriorate further if monetary policy is tightened.
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Bundesbank President Joachim Nagel told Bloomberg Television this week that policymakers may “have to do something” in June as the energy shock from Iran is proving to be persistent.
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—With assistance from Barbara Sladkowska.
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(Adds Bloomberg Economics.)
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English (US)