Wage growth in the eurozone cooled in the first three months of 2025, confirming the European Central Bank's view that wage-driven inflationary pressures are easing. This also reinforces the case for further interest rate cuts: consensus forecasts suggest that the ECB will ease monetary policy again at next month's meeting.
Negotiated wages rose by 2.38% year-on-year in the first quarter, down from 4.12% in the previous quarter, according to ECB data. The last value was half the 5.4% peak recorded last year. Services inflation, which is heavily influenced by wages, rose 4% in April, but overall inflation held steady at 2.2%.
Recent data suggest wage growth is losing steam, a trend that could help tame the persistent inflation in the eurozone. European Central Bank officials remain confident that inflation is on track to hit their 2% target soon. The European Commission forecasts a decline to that level by mid-2025, with a further dip expected in 2026, partly due to the effects of U.S. tariffs on financial markets.
The ECB is widely expected to implement its eighth rate cut of the cycle next month. Markets anticipate one additional cut later this year.
After several years of robust wage increases, workers are now facing tougher negotiations. In Germany, public-sector unions recently agreed to a 5.8% raise spread over two years, labeling it a “difficult result.”