The European Central Bank stated that salary growth in the Eurozone is expected to accelerate in the second half of this year; the bank is assessing whether the spillover effects of high energy costs necessitate an interest rate increase.
According to Zhitong Finance, the European Central Bank (ECB) stated on Wednesday that wage growth in the Eurozone may accelerate in the second half of this year. The ECB is actively assessing whether the spillover effects of high energy costs caused by geopolitical conflicts in the Middle East will necessitate an interest rate hike after many years.
A European wage tracker released by the ECB on Wednesday forecasted that wage data for the third and fourth quarters would increase by 2.6% year-on-year, potentially driving up overall inflation in the Eurozone. This is higher than the average forecast for the first six months of the year, highlighting concerns among ECB policymakers that high oil prices could spill over into broader sectors of the economy, although the expected increase remains far below the peak wage growth of over 5% in 2024.
The geopolitical conflict that erupted on February 28 has severely disrupted global energy supply markets. Shipping through the Strait of Hormuz, which accounts for 20% to 30% of global oil and gas transportation, has almost completely halted, leading to tight supplies and significantly pushing up oil prices. As a result, Brent crude futures, the international oil price benchmark, surged by 50% in the first quarter, hovering around $100 per barrel. As shown in the chart above, ECB policymakers generally expect wage growth in the Eurozone to accelerate significantly later in 2026, driven by high oil prices.
ECB policymakers are currently assessing whether factors such as wage demands might cause inflation triggered by the Iran war to permeate across industries and whether this escalation will persist. Following the ECB’s decision last week to keep interest rates at 2%, ECB President Christine Lagarde stated that companies do not currently plan to raise wages significantly. However, the ECB still recalls the price surge of 2022, which could trigger workers to demand higher wages amid a high-inflation macroeconomic environment.
A survey released by the ECB this week showed that European companies in the first quarter still expect wage growth to slow from 3.5% in 2025 to 2.9% this year and 2.8% next year.
On Thursday last week, the ECB announced it would maintain the deposit facility rate at 2%, in line with market expectations. The ECB provided no forward guidance on future decisions, reiterating that decisions will be made meeting by meeting based on incoming information. In its statement, the ECB’s Governing Council noted: ‘Upside risks to inflation and downside risks to economic growth in the Eurozone have intensified. The Governing Council remains well-positioned to address current uncertainties.’
At a press conference following the interest rate decision announcement, ECB President Lagarde stated that although policymakers had discussed the option of raising interest rates and would reassess whether to tighten policy at the June meeting, the current state of the Eurozone economy should not be labeled as stagflation, emphasizing that the situation is ‘completely different’ from the 1970s.
Lagarde emphasized that this decision was made under conditions of incomplete information, but the committee unanimously agreed to maintain interest rates while also engaging in an ‘in-depth and comprehensive’ discussion on the possibility of a rate hike. She stated that the upcoming six weeks would be a critical window for assessing economic conditions, enabling a decision based on more complete data at the June meeting.