The European Central Bank's internal wage tracker indicates negotiated euro zone pay growth is moderating, according to a data release that covers information through the end of May. The unrevised series points to negotiated wage growth of about 2.6% by the end of 2026, a slowdown from the 3.2% recorded in the previous year.
The ECB highlighted that the data series which includes unsmoothed one-off payments shows wage growth for the whole of 2026 at 2.6%, down from 3.0% a year earlier. Policymakers at the central bank have long maintained that wage growth between 2% and 3% is compatible with their 2% inflation objective, and the current readings fall within that range.
Officials had been worried that the rapid rise in inflation tied to the Iran war could prompt workers to seek compensation, potentially restarting a self-reinforcing wage-price cycle similar to that seen in 2022. Such a cycle, the bank has argued, can only be restrained by higher borrowing costs. The latest wage-tracker reading suggests that this dynamic has not yet materialized on a broad negotiated-pay basis.
The timing of the release coincides with a period of active policy deliberation at the ECB. The bank raised its key interest rate to 2.25% last week after inflation exceeded 3%, describing the move as largely aimed at preventing inflation expectations from rising. Policymakers are now weighing whether an additional increase in July is necessary.
Market participants currently expect between one and two additional rate hikes over the coming year, with the next move fully priced in by October. While wage developments are only one component of the inflation outlook, the moderation seen in the ECB's tracker may lessen immediate pressure on policymakers to act again in the near term.
In sum, the wage-tracker data provide a snapshot that negotiated pay growth is slowing as anticipated, offering some relief to central bankers concerned about a renewed pay-driven inflation spiral. The data will form part of the broader assessment that informs decisions on the path of interest rates and the appropriate policy response to inflationary pressures.