FX.co ★ Eurozone Negotiated Wage Growth Picks Up in Q2

In the second quarter of 2025, wages negotiated in the Euro Area increased by 3.95% compared to the same period last year, marking an acceleration from the previously revised rate of 2.46% in the prior quarter. This development complicates the European Central Bank's (ECB) strategy regarding interest rates. The ECB has emphasized that reducing inflation to its target of 2% is contingent on slower wage growth and diminishing price pressures in the services sector, where inflation hovers around 3%. The Bundesbank reported significant wage growth in Germany during this quarter but anticipates a slowdown as inflation decreases and the economy remains sluggish. The ECB's own wage monitoring indicates a potential easing of wage growth into the next year, providing some reassurance. Nevertheless, the recent wage surge highlights the cautious stance of policymakers concerning further rate cuts. Market projections suggest that the ECB will maintain its deposit rate at 2% in September, sustaining a pause after a prolonged phase of reductions, though some officials advocate for keeping the possibility of additional cuts open.