ECB forecasters raise inflation outlook as wage fears grow

Professional forecasters have lifted their euro zone inflation outlook sharply, and large companies are bracing for workers to push for bigger pay rises. Both findings come from two European Central Bank surveys published Friday, October 30, a day after the central bank held interest rates steady. Together they show the energy shock tied to the Middle East conflict lasting longer than economists first expected, while wage pressure only starts to build.

Forecasters revise inflation up

In its fourth-quarter Survey of Professional Forecasters, the ECB said respondents now expect headline inflation of 3.0% in 2026 and 2.6% in 2027. That is 0.3 and 0.4 percentage points higher than in the previous round. The 2028 forecast stayed at 2.0%. The ECB said the revisions were driven mainly by "higher and more persistent energy commodity prices" and their knock-on effects. Forecasters left core inflation for 2026 at 2.4% but raised it to 2.5% for 2027 and 2.2% for 2028. Longer-term expectations stayed anchored at 2.0%.ecb.europa.eu

Most panellists now expect the conflict to last 10 to 12 months from its outbreak in late February 2026, according to the survey. In the previous round they had expected one to three months. Reuters reported that inflation hit nearly twice the ECB's 2% goal last month. It said this could force the bank to raise rates again in December.reuters.com

Forecasters still don't expect a wage-price spiral. They see wage growth easing from 3.3% this year to 3.1% in 2027 and 2.8% in 2028. Second-round effects on inflation are put at about 0.1 percentage points in 2027, the ECB said.ecb.europa.eu

Companies see pay pressure rising

A separate ECB summary of talks with 64 leading non-financial companies, held mostly between September 28 and October 7, found that around 40% of contacts expected higher wage demands from the conflict-driven rise in inflation, or saw a risk of them. That was up from 20% in the previous round. Firms still expect wage growth to slow from 3.2% in 2025 to 3.0% in 2026 and 2.9% in 2027, Reuters reported, but more gradually than before. Most contacts did not foresee a notable effect on pay, citing weak economic conditions and the employment outlook.reuters.com+2

The poll also showed a split on pricing power. About 90% of consumer-facing firms said they could pass higher costs on to selling prices only partially or in a limited way. Fewer than half of companies selling to other businesses said the same, according to Reuters.reuters.com

Policy backdrop

When it kept rates unchanged on October 29, the ECB's Governing Council said that wages "do not show a material response at this stage." It noted that compensation per employee grew 3.3% in the second quarter. The ECB has long said wage growth of around 3% is consistent with its inflation target, Reuters noted. Friday's company poll suggests that comfort may be getting thinner.ecb.europa.eu+1