Euro zone companies are bracing for higher wage demands from their workers after a surge in the cost of living caused by the Iran war, a European Central Bank survey showed on Friday, according to Reuters. In the ECB's quarterly survey of large euro zone companies, 40% of respondents were either expecting or already seeing the risk of higher wage demands — double the 20% recorded in the previous poll published in July.
Source: Reuters
The survey matters because the ECB is watching closely for any sign that the recent energy-fuelled rise in inflation is spreading into salaries, which would make price growth harder to bring back down. The central bank kept interest rates steady on Thursday but hinted at a hike at its next meeting.
Overall wage growth is still expected to slow — from 3.2% last year to 3.0% this year and 2.9% the next — but more gradually than companies had expected in the previous survey round, Reuters reported from the ECB poll.
Firms also said they were struggling to pass higher costs on to customers, who are increasingly hunting for cheaper options. Around 90% of respondents from consumer-facing firms said pass-through to selling prices was only partial or limited, compared with less than half among companies that sell to other businesses.
The findings land the same day France reported a surprise 0.1% contraction in the third quarter, underlining how the energy-price shock that followed the Iran war is squeezing both sides of Europe's economy at once: factories losing export orders while workers push for pay that keeps up with the cost of living.
For the large Punjabi and Indian workforce across Europe, the survey is a double signal: pay demands are rising because living costs jumped after the Iran war pushed energy prices up, but companies' weak ability to raise prices also means tighter margins — the backdrop against which the ECB decides whether to raise rates again in December.