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Why the ECB Is Watching Wages Before Raising Rates Again
The ECB raised its deposit rate to 2.50% in September 2026, but officials have not seen clear evidence that the energy shock is driving a wage–price spiral. Philip Lane says workers face higher living costs, but employers’ limited room to grant larger pay rises helps explain the muted wage response.
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Key takeaways
- The ECB raised its deposit rate to 2.50% in September 2026, but officials have not seen clear evidence that the energy shock is driving a wage–price spiral.
- Philip Lane says workers face higher living costs, but employers’ limited room to grant larger pay rises helps explain the muted wage response.
- Low gas inventories raise the inflation risk; resilient euro area growth gives the ECB more room to act, without making another hike inevitable.
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openai.comCreate a landscape editorial hero image for this Studio Global article: How are ECB officials assessing the risk that the euro area’s 2026 energy-driven inflation surge will lead to higher wages and broader price. Article summary: ECB officials see a **risk of persistent inflation**, not yet clear evidence that the 2026 energy shock has become a wage–price spiral. They are watching whether higher oil and gas costs feed into pay demands and firms’ . Topic tags: general, government, news, general web. Style: premium digital editorial illustration, source-backed research mood, clean composition, high detail, modern web publication hero. Use reference image context only for broad subject, composition, and topical grounding; do not copy the exact image. Avoid: logos, brand marks, copyrighted characters, real person likenesses, fake screenshots, UI text, readable text, watermarks, charts with
The European Central Bank’s immediate problem is higher energy-driven inflation. Its longer-term concern is whether that shock changes wage demands, companies’ pricing decisions and inflation expectations. Officials see a risk that inflation could become more persistent, but the evidence so far does not establish a wage–price spiral.18
Why wages are the decisive test
Energy costs can push up headline inflation directly. The ECB describes second-round effects as a separate step: the initial shock feeds into wages, firms’ prices or margins, and inflation expectations, making price increases broader and harder to reverse.18 In August, euro-area inflation rose to 3.3%, driven almost entirely by higher energy costs, while underlying price pressures remained modest.
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Governing Council member Olli Rehn said wage growth was moderate and that second-round effects had been absent so far. Chief Economist Philip Lane has likewise noted that workers recognize the rise in living costs, but employers face constraints on granting compensating pay increases. That helps explain the muted wage response; it does not rule out one later.15
Why gas supplies still worry the ECB
Lane says a second wave of increases in both oil and gas prices means the energy shock is likely to last longer than the ECB expected in March. He expects inflation to remain higher for longer before moving back toward the ECB’s target from mid-2027.17 Gas storage levels well below historical norms add to the risk: efforts to replenish supplies have helped push up gas prices, with potential consequences for household heating and business electricity costs.
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A longer shock gives higher energy costs more time to work through the economy. It is not, by itself, proof that wages or other prices will accelerate.17
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What would justify another rate hike?
The ECB raised its key rates by 25 basis points in September, after a similar increase in June; the September move took the deposit facility rate to 2.50%. Its projections put average inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.3
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Investors have increased their bets on further hikes as energy prices have risen. Vice President Boris Vujčić cautioned, however, that market pricing is being driven mainly by energy and that the ECB will assess a wider set of economic indicators rather than treat those bets as a policy instruction.1
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Growth strengthens the case for considering another move, not automatically making one. Euro-area GDP surprised on the upside in the second quarter, prompting the ECB to revise up its growth outlook; a September business survey also showed an unexpected acceleration in activity. Stronger activity may give policymakers more room to contain inflation, but the critical question remains whether energy costs are spreading into sustained wage and broader price increases. The provided evidence does not establish a separate effect from global growth data on the ECB’s next decision.18
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What is the short answer to "Why the ECB Is Watching Wages Before Raising Rates Again"?
The ECB raised its deposit rate to 2.50% in September 2026, but officials have not seen clear evidence that the energy shock is driving a wage–price spiral.
What are the key points to validate first?
The ECB raised its deposit rate to 2.50% in September 2026, but officials have not seen clear evidence that the energy shock is driving a wage–price spiral. Philip Lane says workers face higher living costs, but employers’ limited room to grant larger pay rises helps explain the muted wage response.
What should I do next in practice?
Low gas inventories raise the inflation risk; resilient euro area growth gives the ECB more room to act, without making another hike inevitable.