ECB survey signals easing wage and cost growth expectations in Eurozone

Eurozone companies expect selling prices and wage growth to rise at a more moderate pace over the next 12 months, according to a survey published by the European Central Bank on Monday.

The findings add to the evidence that the recent surge in inflation, driven largely by higher energy costs, has not yet led to broader second-round price pressures across the economy.

Inflation in the euro zone is currently hovering near 3%, remaining well above the ECB's 2% target because of elevated energy costs.

Policymakers have expressed concern that persistent price growth at these levels could lift inflation expectations and trigger stronger wage demands, potentially creating a difficult-to-break cycle of rising prices and wages.

Selling price expectations decline

According to the ECB's Survey on the Access to Finance of Enterprises, firms now expect selling prices to increase by 3.2% over the next 12 months.

This marks a decline from the 3.5% expectation recorded three months earlier.

The survey also showed that companies expect non-labour input costs, including energy expenses, to increase by 5.2% during the coming year.

This compares with an earlier expectation of 5.8%, indicating that businesses anticipate some easing in cost pressures.

The ECB said, "On average, firms expected selling prices, non-labour input costs and wage expectations to rise more moderately over the next 12 months."

More than 5,000 firms participated in the survey.

Wage growth expectations ease

The survey also indicated that businesses expect wage growth to slow.

Firms projected wages to increase by 2.5% over the next year, down from 2.8% in the previous quarter.

The ECB said these figures will be an important input for policymakers as they prepare for their interest rate-setting meeting on Thursday.

The moderation in both selling prices and wage expectations may offer policymakers additional evidence that broader inflationary pressures have yet to become deeply embedded, despite elevated energy prices.

Inflation expectations remain stable

While businesses lowered their expectations for selling prices and wage growth, their longer-term inflation outlook remained broadly unchanged.

The survey showed that inflation expectations for one year and three years ahead were steady at 3.0%.

Meanwhile, the five-year inflation expectation edged higher to 3.1%, compared with 3.0% three months earlier.

The relatively stable inflation outlook suggests that businesses continue to expect price growth to remain above the ECB's inflation target over the medium term, even as expectations for near-term cost increases become more moderate.

Focus shifts to ECB policy decision

The survey comes ahead of the ECB's policy meeting later this week.

Markets widely expect the central bank to leave interest rates unchanged at the meeting.

However, higher oil prices have increased expectations that the ECB could deliver another interest rate increase in September, potentially raising the deposit rate from its current level of 2.25%.

The latest survey findings provide policymakers with fresh insight into how businesses view future pricing, input costs, and wages.