Euro-area inflation expectations, wage growth both cool as ECB weighs next hike

Euro-area consumers lowered their inflation expectations in July while negotiated wage growth decelerated in the second quarter, giving the European Central Bank a pair of data points that support its disinflationary narrative even as geopolitical risks keep rate-hike bets alive.

Consumer Survey Shows Modest Improvement

The ECB's Consumer Expectations Survey, published Friday, showed households expect prices to rise 2.9% over the next 12 months, down from 3.0% in June. The three-year measure, which carries more weight in policy deliberations, fell to 2.7% from 2.8%. Perceived inflation over the prior 12 months also edged lower to 3.5% from 3.6%. Respondents projected a 1.2% contraction in the euro-area economy over the coming year, an improvement from the 1.4% contraction expected previously.tradingview+2

Wage Growth Continues to Decelerate

Separately, data released Friday showed negotiated wages in the euro area rose 2.44% year-on-year in the second quarter of 2026, slowing from a revised 2.56% in Q1 and well below the 5.55% peak recorded in 2024. The reading aligns with earlier ECB wage-tracker projections that pointed to negotiated pay growth stabilizing near 2.6% for the full year.reuters+2

Rate Hike Still Expected Despite Easing Signals

Despite the cooling data, ECB Governing Council member Martins Kazaks said Friday that the central bank is "well placed" to act further if needed, describing current inflation as sitting at a "somewhat uncomfortable" level with consumer-price gains "lingering in the neighborhood of 3%". Markets remain nearly certain of a quarter-point increase in the deposit rate at next month's meeting, which would build on June's initial hike. Money markets now price roughly a 25% chance of the deposit rate reaching 3% by March 2027 and about 60% by September, reflecting persistent concern over energy-related price pressures from the U.S.-Iran conflict. Newsquawk noted that the consumer survey is "context, not catalyst," with negotiated wages and services inflation carrying more weight in the ECB's reaction function.newsquawk+2