(June 29): Euro-area pay growth is poised to accelerate through early 2027, though it will remain far below previous peaks, the European Central Bank said as it gauges inflation resulting from the Iran war.

The ECB’s wage tracker, published Wednesday, predicts salaries will rise by an annual 2.7% in the first quarter of next year, after increasing 2.6% in the third and fourth quarters. That’s stronger than the projection for the first six months, but still way below 2024’s 5.2% peak.

“This increase over the course of the year reflects the fading mechanical downward effect of large one-off payments that were made in 2024 but not in 2025,” the ECB said in a statement. “Forward-looking information continues to indicate stable negotiated wage pressures in 2026 and the first quarter of 2027.”

Policymakers are tracking salaries particularly closely as they try to stop energy-price jumps from morphing into a lasting cycle of higher wages and prices akin to what happened after Russia invaded Ukraine in 2022.

While officials kept borrowing costs on hold last week after a quarter-point increase in June, people familiar with the situation say they’re prepared to hike again in September unless the inflation outlook improves markedly.

ECB President Christine Lagarde stressed that recent indicators confirm the anticipated “gradual decline of wages", adding that “none of those elements, for the moment, are giving us second-round effects indications”.

“Leading indicators suggest a low risk of a repeat of the significant self-reinforcing wage pressure that we saw during the 2022 inflation episode,” said Paolo Grignani and Iain Simmons of Oxford Economics. “This reflects the relatively short-lived nature and scale of this year’s energy shock, the limited breadth of cost pressures to date, relatively weak consumer inflation expectations, and a softer labour market than in 2022.”

Governing council member Christodoulos Patsalides struck a similar tone.

“On wages and the wage trackers, there is nothing there,” the Cypriot central bank chief told Econostream Media in an interview published Wednesday. “If anything, my impression is that wage demands are contained.”

Some still worry. Officials including Slovakia’s Peter Kazimir warn that the ECB can’t just wait for such effects to materialise as acting only at that stage could be too late.

Uploaded by Arion Yeow