EuroZone wage growth quickens, backing ECB caution on rates

[BRUSSELS] A key measure of euro-area pay growth jumped, supporting caution by the European Central Bank on further reducing interest rates.

Second-quarter negotiated wages rose 4 per cent from a year ago, the ECB said on Friday (Aug 22). That’s up from 2.5 per cent in the first three months of the year, though still below the 5.4 per cent peak recorded in 2024.

The ECB’s confidence in stabilising inflation at 2 per cent rests on salary gains moderating and price growth in the labour-intensive services sector – still stuck near 3 per cent – abating.

Its own pay tracker for the 20-nation eurozone signals a significant retreat into the start of next year. While the Bundesbank reported a strong boost in German wages this quarter, it also sees a softening ahead “due to declining inflation rates and the weak economic environment.”

The ECB is widely expected to leave the key deposit rate at 2 per cent when it reconvenes after its summer break in September, extending a pause that began last month following a yearlong campaign of cuts.

Most officials see rates in a good place, at a level that neither restricts nor supports economic activity. Some, though, have suggested further reductions shouldn’t be excluded. BLOOMBERG