ECB: Eurozone Wage Growth Expected to Rise to 2.8% by 2027
nashnova research
The ECB's latest wage tracker projects eurozone wage growth reaching 2.8% by Q2 2027 — a mild pick-up from 2026 lows but still well below the 5.2% peak hit in 2024, keeping second-round inflation pass-through broadly contained while energy-shock risks linger.
2.8% — is that high? How far from the danger zone?
Annual wage growth is forecast at 2.7% in Q1 2027, edging up to 2.8% in Q2 — above 2026 H2 levels.
Compared with the 5.2% peak in 2024, the rebound is modest. This means → wages are normalizing, not re-accelerating.
In plain terms = pay is rising, but the pace is only a small bounce off a low base — nowhere near the speed that would alarm the ECB.
Why were the 2026 H1 numbers so low?
The ECB explains: companies made large one-off payments in H2 2024 (a base effect). Those payments were not repeated the following year.
When calculated year-on-year, the high prior-year base mechanically drags down the current reading. This means → the numbers "looking low" does not equal wages actually stalling.
The ECB expects this distortion to fully wash out by H2 2026, after which the data will reflect the true wage trend.
Could the energy shock push wages even higher?
The Iran war has driven up energy costs. The ECB is assessing the risk of energy prices passing through to other prices via the wage channel.
Its current assessment: wages have shown no "material response" to the energy shock so far.
But the ECB warns — if the shock intensifies, the impact on prices and wages could exceed current expectations. This reflects acute awareness of tail risk.
The ECB has hiked twice — will it keep going?
The ECB completed its second rate hike since June last week, aiming to push inflation back from over 3% toward the 2% target.
Latest data: employee compensation rose 3.3% year-on-year in Q2 2026, down from 3.5% in Q1 — the direction is decelerating.
Markets still price in further tightening ahead. This means → the hiking cycle is most likely not over yet.
What is the internal debate? Who has the upper hand?
Doves argue: wage growth is slowing, second-round concerns are easing — no need to rush further hikes.
Hawks counter: waiting until second-round effects actually show up may mean hiking too late.
The tracker's projected rebound has not yet breached the 3% threshold that would trigger policy-maker alarm. In plain terms = the data currently favors the doves, but the evolving energy shock could tip the balance at any moment.
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