ECB wage tracker shows muted pay pressure despite war inflation

FRANKFURT, June 17 (Reuters) - Euro zone negotiated wage growth appears to be slowing as predicted, European Central Bank data showed on Wednesday, offering policymakers relief that the Iran-war-induced inflation surge has not set off a fresh round of pay demands.

The ECB fears workers will demand compensation for rapid inflation, much like in 2022, triggering a self-reinforcing cycle that can only be tamed through higher borrowing costs.

However, the ECB's own wage tracker, which includes data up to the end of May, was unrevised and indicates negotiated wage growth at around 2.6% by end-2026, below the 3.2% last year.

The data series with unsmoothed one-off payments shows wage growth for the whole of 2026 at 2.6%, down from 3% a year earlier, said the ECB, which has long argued that wage growth between 2% and 3% is consistent with its 2% inflation target.

Though just one piece in the inflation puzzle, the data may take pressure off policymakers to quickly raise rates again. The ECB lifted its benchmark rate to 2.25% last week after inflation exceeded 3%, mostly to prevent expectations from rising, and policymakers are now debating whether a follow-up move in July is needed.

Markets expect between one and two more rate hikes over the coming year and the next move is fully priced in by October. (Reporting by Balazs Koranyi; Editing by Alex Richardson and Alexander Smith)