ECB wage tracker points to 2.4% pay growth by late 2027, easing inflation fight

Euro-area pay growth is set to slow to an annual 2.4% between July and September 2027, the European Central Bank's wage tracker predicts, a reading below the 2.8% forecast for the first and second quarters of that year and far under 2024's 5.3% peak.

The tracker, published on Wednesday, lands at a delicate moment for the ECB, which is trying to stop energy-driven inflation linked to the Iran war from becoming entrenched through wage deals and firms raising prices. Policymakers have said they are watching pay developments closely for signs that price pressures are feeding into incomes.

Inflation expectations among euro-area households rose slightly again in September, the ECB said. The central bank left interest rates unchanged last week after quarter-point increases in June and September, but officials are ready to raise again next month if the inflation outlook does not improve.

The ECB said last week that wages show no material response at this stage, though it listed the possibility of stronger-than-expected pay increases as one factor behind upside risks to the outlook. Some officials argue the bank cannot simply wait for such outcomes to materialise, since acting only then could be too late.

The tracker's projection of slower pay growth in 2027 therefore cuts both ways: it supports the case for patience, but it arrives too far out to settle the argument over whether to move again in December.