Negotiated wages in the euro area rose 2.5% year-on-year in the first quarter of 2026, down from a revised 2.9% in the previous quarter and well below the 5.6% peak reached in 2024. This slowdown offers some relief to European Central Bank (ECB) officials worried about inflationary pressures stemming from the conflict in Iran. It may also give the ECB scope to avoid more aggressive monetary tightening as it evaluates the second-round effects of the energy price shock.
Surging oil and gas prices have already driven euro area inflation to 3%, above the ECB’s 2% target, and further increases are likely. Policymakers have therefore signaled that interest rate hikes are on the table at the June meeting. Even so, some officials and analysts urge caution, noting that recent PMI data point to a sharp economic downturn that could be exacerbated by tighter monetary policy.
