ECB Wage Growth Data Backs Rehn's No-Spiral Call as Pay Cools

Rehn says the energy shock has not reached wages

Olli Rehn, the Bank of Finland governor who sits on the European Central Bank's Governing Council, says the war-driven energy shock has not yet set off a wage-price spiral in the euro area. Speaking at an OMFIF event in London on September 17, he named energy prices as the main source of euro-area inflation. He called wage growth moderate and said second-round effects of a price-wage spiral had been absent, adding the qualifier "absent so far."2 Other outlets carried a slightly different wording of the same remarks. In that version, wage growth "has moderated" and a wage-price spiral has "not materialised."3 The difference is small but tells you something. One version describes wage growth as steady at a modest level. The other describes it as slowing, and that is the more encouraging reading.

Rehn was not offering an all-clear. He said the energy shock is still playing out and that "upward risks may be creeping in."6 Reuters reported that he saw no clear signs of second-round inflation. He told the audience that the labour market is less tight than it was in 2022, when Russia's invasion of Ukraine and the post-COVID recovery pushed both prices and pay higher, though he said the ECB is watching that closely.7

The question is whether the wage data support his view. Mostly they do, and that matters for how far the ECB's new tightening cycle goes.

What the wage numbers show

The ECB's own September Economic Bulletin is the clearest evidence. It says wages have not responded in any material way to the energy shock so far. Compensation per employee grew 3.3% year on year in the second quarter of 2026, down from 3.5% in the first quarter.8 Productivity helped too. Unit labour cost growth, which is closer to what firms actually pay per unit of output, fell to 2.6% from 3.5% over the same period.8

More of the slowdown came from negotiated wages, the pay set in collective agreements, than from bonuses or overtime. The bulletin says negotiated wage growth eased to 2.4% in the second quarter from 2.6% in the first. Wage drift, the gap between actual pay and agreed rates, contributed slightly less: 0.9 percentage points, down from 1.0.8

The published figures do not line up perfectly. A data aggregator recorded first-quarter negotiated wage growth at 2.46%, down from 2.89% in the fourth quarter of 2025.14 The Bulletin's later figure of 2.6% for the first quarter suggests the number was revised up.8 Revisions like this are common in quarterly wage statistics and do not change the direction. Either way, negotiated pay is growing at a rate in the mid-2s, well below the levels that worried the ECB in 2023 and 2024.

The wage tracker has barely moved since the war began

The ECB's forward-looking wage tracker, which follows active collective agreements in nine euro-area countries, gives the strongest support to Rehn's argument. Before the Middle East conflict pushed energy prices up, the February release already expected negotiated wage growth to settle below 3% by the end of 2026.12 The March update cut the 2026 figures by 0.1 percentage point and pointed to stabilisation around 2.6%.15

The forecast barely changed after the conflict started. In May, Reuters reported that negotiated wage trends were largely unchanged since the war began, with both the smoothed and unsmoothed measures at 2.6% for 2026.19 The May release put the measure excluding one-off payments, the closest gauge of underlying base-pay growth, at 2.6% for 2026, down from 3.8% in 2025.11 The June release, which included agreements signed up to the end of May, was again essentially unrevised. It showed the unsmoothed measure at 2.6% for 2026 compared with 3.0% in 2025.13 Reuters described this as relief for policymakers that the inflation jump had not produced a new round of pay demands. It also noted the ECB's long-standing view that wage growth of 2% to 3% fits with its 2% inflation target.18

The latest figures, cited in the September bulletin, include agreements signed up to the end of August. They show negotiated wage pressure holding at 2.6% in 2026 and edging up to 2.7% in the first half of 2027.8 That small rise in 2027 is the one place where some pass-through might be starting to show. It is a 0.1-point increase, not the jump in pay settlements that a spiral would produce.

Why that matters for rates

This matters because the ECB is now raising rates. It increased its three key interest rates by 25 basis points on September 10 and said inflation would stay well above target for an extended period because of the Middle East conflict.8 It was the second increase since the fighting began.5 The ECB's projections now show faster inflation in 2027 and 2028, with 2028 slightly above 2%.5 Markets priced in at least three more quarter-point increases over the following year.5

The wage data are what make that market pricing look too aggressive. If energy costs were feeding into pay deals, the ECB would have to tighten hard to stop a self-reinforcing cycle. It has not had to, because they are not. In late September, ECB President Christine Lagarde said there was no clear evidence that higher energy prices were feeding into wages. Reuters reported that her comments pushed back against the most aggressive tightening bets.10 Economists cited in that coverage expect a hold at the October 29 meeting and possibly a hike in December, when new projections are due.10 One market summary put the chance of another increase this year at roughly 50%. It argued that softer wage persistence would help European bonds, while energy inflation keeps another move on the table.9

Rehn and Lagarde are now saying the same thing. Together, their comments suggest the Governing Council is converging on a reading: the shock is real and could still spread, but the most dangerous channel, wages, is quiet. Rehn's insistence that the Council will not commit in advance to a rate path3 fits this reading. Wage data are among the main things those decisions will depend on.

Where the reporting differs

Most coverage agrees on the core facts: energy is driving inflation, pay is moderate and there is no spiral yet. The differences are in emphasis. Some outlets led with Rehn's warning that risks may be rising and that the shock is not over.16 Others led with the reassurance on second-round effects.27 Reuters also focused on his support for jointly issued EU debt to fund defence.7

One report stands out for being muddled. It dated some of Rehn's remarks to August 19 and described the September 10 meeting as still ahead, even though the hike had already happened when he spoke in London.4 It also cited a rise in euro-area inflation from 2.9% in July to 3.3% in August.4 That inflation path is broadly consistent with Lagarde's later comment that inflation is above 3% and could approach 4% by year-end.10 Even so, the timeline in that report should be treated with caution.

The weak points in the reassurance

The argument that wages are under control has limits. The tracker covers fewer workers the further ahead it looks. In the June release, coverage fell from about 44% of employees in mid-2026 to about 40% by the fourth quarter.13 The ECB itself warns that the forward-looking part of the tracker is not a forecast. It reflects only agreements already signed.15 Contracts negotiated in late 2026 and 2027, after a year of inflation above 3%, are the ones most likely to include catch-up demands, and the tracker cannot see them yet.

The ECB also expects compensation per employee to grow 3.3% a year in 2027 and 2028. It notes that this is above the long-term average, supported by a resilient labour market.8 Unemployment was steady at 6.4% in July.8 The bulletin also warns that the longer energy prices stay high, the more likely indirect and second-round effects become, and that gas prices could rise if supplies are disrupted or the winter is cold.8

The bottom line

Overall, the evidence supports Rehn more than the hawks in the market. Negotiated pay is slowing, the tracker has hardly changed since the conflict began, and productivity is keeping unit labour costs down. The "so far" in his comments is not just caution. It points to the 2027 bargaining round as the real test. Until there are signs that unions are winning compensation for this year's price shock, the wage data argue for gradual tightening rather than a rush. The next negotiated-wage release, scheduled for November 20 with third-quarter data, is the one to watch.16