ECB sees no major wage response to inflation surge

The European Central Bank is not detecting a broad wage response to this year's energy-driven inflation spike, the bank's chief economist said Wednesday, offering reassurance that rapid price growth is not yet becoming entrenched in the euro area economy.

Lane Points to China Competition and AI as Wage Restraints

Speaking at a university lecture in Lausanne, Switzerland, ECB Chief Economist Philip Lane said workers appear to be absorbing higher living costs rather than pressing for large pay increases — in part because employers are pushing back.reuters

"We're not seeing any big response to the energy shock, and how I reconcile that is (that) people know the cost of living is going up more than they expected, but they've also got a lot of firms that say, 'Look, we're being outcompeted by China; you do know if you ask for too much, we have the AI robots ready to go,'" Lane said, according to Reuters.reuters

Inflation surpassed 3% last month and some economists expect it to reach 4% by year-end as fuel and gas prices climb amid escalating tensions tied to the conflict with Iran. Market bets on further ECB rate hikes have increased, with investors pricing in three or four additional moves on top of the hikes delivered in June and September. But Lane suggested the actual market expectation, once risk premiums are stripped out, implies only two more increases, with rates peaking just above 3% next year before declining by the end of 2027.wmbdradio

Lane also flagged low natural gas inventories as a risk. Energy firms delayed restocking over the summer, leaving storage levels at 70% — 16 percentage points below their historic average.wmbdradio

Makhlouf: ECB Will Act if Second-Round Effects Emerge

Separately on Wednesday, ECB policymaker Gabriel Makhlouf, who heads Ireland's central bank, told national broadcaster RTE that the ECB would raise rates again if high energy prices begin feeding through to other areas of the economy — but said no such second-round effects are currently visible.english.aawsat

"Although inflation is above our target, we're not seeing the sorts of second-round effects that start feeding through to prices," Makhlouf said. He had cautioned earlier this month, following the ECB's September rate hike, that raising rates "a great deal more" risked damaging growth.english.aawsat

Economy Shows Surprising Resilience

The comments came as fresh data showed the euro area economy defying expectations. The S&P Global Flash Euro Zone Composite PMI jumped to 53.1 in September from 52.0 in August, well above the consensus forecast of 51.7, with broad-based growth across manufacturing and services. The OECD also raised its 2026 global growth forecast on Wednesday to 2.9%, citing resilient activity despite the Middle East conflict, while lifting the eurozone outlook to 1.0%.english.aawsat

"Today's PMI readings make it more difficult for even the ECB's most dovish policymakers to rule out another rate hike," said Carsten Brzeski at ING.english.aawsat