(Nov 4): Euro-area pay growth is poised to slow sharply in the third quarter of 2027, encouraging news for the European Central Bank as it battles inflation driven by the Iran war.

The ECB’s wage tracker, published Wednesday (Nov 4), predicts salaries will rise by an annual 2.4% between July and September next year. That’s below the forecast of 2.8% for the first and second quarters. All readings are far below 2024’s 5.3% peak.

Policymakers are particularly attentive to pay developments at present as they aim to stop energy-driven inflation from becoming entrenched through wages and firms boosting prices. Inflation expectations among euro-area households increased slightly again in September.

The ECB kept interest rates unchanged last week following quarter-point hikes in June and September. But officials are ready to raise again next month if the inflation outlook doesn’t improve.

Wages don’t show a material response at this stage, the ECB said last week. But it listed the possibility of stronger-than-expected pay increases as one factor contributing to upside risks to the outlook. Some officials argue the ECB cannot just wait for such outcomes to materialise, as acting only at that stage could be too late.

Uploaded by Arion Yeow