Euro zone firms anticipate a near-term surge in inflation connected to the war in Iran, but longer-term inflation expectations and wage projections show little sign of broadening, according to the European Central Bank's Survey on the Access to Finance of Enterprises (SAFE) published on Monday.
The SAFE survey, which collected responses from more than 10,000 companies and included answers given both before and after the start of the war, found that one-year inflation expectations rose to 3.0% from 2.6% three months earlier. In contrast, the ECB reported that three- and five-year inflation expectations were unchanged over the same period.
That divergence - a jump in very short-term expected inflation alongside stable medium- and longer-term expectations - is central to how the ECB is weighing risks. With energy prices climbing sharply, the bank has said it is closely monitoring corporate responses and stands ready to raise borrowing costs if an energy-fuelled inflation spike begins to push up wages or longer-term price expectations.
But Monday's SAFE results provide limited evidence so far of those second-round effects. Rather than expecting higher wage settlements, firms reported slightly weaker wage projections. Wages were expected to rise by 2.8%, down from 3.1% three months earlier, the survey showed. The ECB highlighted this point in its commentary.
The war in the Middle East had significantly increased firms’ selling price and input cost expectations, without affecting wage expectations, the ECB said.
On pricing and costs, firms anticipated selling prices to climb by 3.5%, while input costs - a category that includes energy - were predicted to increase by 5.8%. Those cost pressures are reflected in corporate profit outlooks: a net 16% of respondents expected their profits to decline during the quarter.
The SAFE report is one of several indicators due to be reviewed ahead of the ECB's policy decision later this week. While such data can influence the governing council's choice, the ECB has previously signaled it is in no rush to alter rates. Market pricing has mostly removed the prospect of a rate hike in April, although market participants still see a rate move as possible by mid-year.
For policymakers, the pattern in the survey - elevated short-term inflation expectations but stable longer-term expectations and moderating wage forecasts - offers some reassurance that the recent energy-driven price pressures have not yet translated into broader wage-price dynamics. The ECB will continue to watch incoming data for any signs that could prompt a shift in monetary policy.