ECB expects severe cooling in wage growth in the euro area

The ECB wage tracker predicts an annual increase in salaries by 1.7 percent for the fourth quarter of 2025. It is just above the April forecast of 1.6 percent, but far below the high of 5.4 percent last year. The data strengthen the assessment that inflation is under control.

« Future -oriented information confirms that the growth of the tariff wages will decrease, » said the ECB. For 2025, an average wage increase of 3.1 percent is expected for the euro area.

Subjected « in good time »

The wage growth remains increased, but increasingly slowed down. This development strengthens the confidence of currency authorities that inflation will stabilize with its target value of two percent. ECB President Christine Lagarde described the weakening last week as timely and in accordance with this goal.

Some economists already fear that wage dynamics will decrease too much, which could lead to the inflation goal of two percent falling below. The unemployment rate is still low, however, it was 6.2 percent in April.

The ECB reduced the key interest for the eighth time last week, for a total of 200 basis points. Lagarde said that the loosening of monetary policy is now coming to an end. The ECB is now in a favorable location to deal with future uncertainties.

However, if inflation remains permanently below the target value, further interest rate reductions could be required. Some investors and economists even expect a reduction in the deposit rate from currently 2.0 percent to 1.75 or even 1.5 percent.