Eurozone Negotiated Wage Growth Lowest in 3 Years

Negotiated wages in the Euro Area rose by 3.95% year-on-year in the second quarter of 2025, accelerating from an upwardly revised 2.46% in the previous quarter, complicating the European Central Bank’s path on interest rates. The ECB has stressed that easing inflation to its 2% target depends on slower pay gains and cooling price pressures in services, where inflation remains stuck near 3%. While the Bundesbank noted a strong rise in German wages this quarter, it also expects moderation ahead as inflation eases and the economy stays weak. The ECB’s own pay tracker points to softer wage growth into next year, offering some reassurance. Still, the recent jump underscores why policymakers remain cautious about cutting rates further. Markets widely expect the ECB to keep its deposit rate at 2% in September, continuing a pause after a year of reductions, though some officials argue additional cuts should remain an option.

Negotiated wages in the Euro Area increased by 2.38% year-on-year in the first quarter of 2025, slowing sharply from 4.12% in the previous quarter. This marked the smallest increase since Q4 2021, supporting the European Central Bank’s view that wage-driven inflation pressures are easing. The slowdown in pay growth bolsters the case for further interest rate cuts, with the ECB expected to reduce rates again next month. Services inflation, which is heavily influenced by wages, rose 4% in April, but overall inflation held steady at 2.2%. The European Commission expects inflation to fall to 2% by mid-2025 and dip below that in 2026. Recent wage agreements suggest workers are struggling to secure large pay hikes, with Germany’s public sector agreeing to a 5.8% raise spread over two years. An ECB wage tracker also points to further moderation later this year.

Negotiated wages in the Euro Area increased by 4.12% year-on-year in the fourth quarter of 2024, slowing from the 31-year high of 5.43% recorded in the previous quarter. The data provided some relief for European Central Bank policymakers as they continue efforts to curb inflation while supporting sluggish economic growth. The ECB has recently indicated plans to continue easing monetary policy, with money markets pricing in at least two interest rate cuts by the end of December. Meanwhile, a mid-February survey from the ECB indicated that Eurozone firms expect wage growth to slow to 3.6% in 2025 from 4.3% in 2024, before further declining to 2.7% in 2026. For the full year 2024, negotiated wage growth edged up to 4.48% from 4.44% in 2023, marking the highest annual increase since 1993.