Eurozone wage growth to quicken in second half of this year

[FRANKFURT] Euro-area pay growth is set to accelerate in the second half of this year, while remaining far below previous peaks, the European Central Bank (ECB) said, as it gauges inflation risks from the Iran war.

Its wage tracker predicts salaries will rise by an annual 2.6 per cent in the third and fourth quarter. That is stronger than the projection for the first six months, but still way below 2024’s 5.2 per cent 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 on Wednesday (Jun 17).

Policymakers are particularly attentive to salaries right now, as they want to stop the energy-induced surge in inflation from becoming entrenched via wages and companies’ selling prices.

They hiked interest rates on Jun 11 for the first time since 2013.

Investors and economists expect at least one more quarter-point increase in borrowing costs to 2.5 per cent.

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Asean Intelligence

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While the announcement of a US-Iran deal to reopen the Strait of Hormuz boosted expectations for a revival in oil supply, ECB officials have cautioned that it will take months to get back to normal.

Recent pay indicators – compensation for each employee and negotiated wages – showed a slowdown in the first quarter of this year before the outbreak of the war. But it usually takes months for higher energy costs to pass through to wages. BLOOMBERG