Eurozone Compensation-per-Employee Growth at 3.5% in Q1 2026

Key Facts

Euro-area compensation per employee grew 3.5% year on year in the first quarter of 2026, slowing from 3.8% in the fourth quarter of 2025. Negotiated wage growth fell to 2.5% from 2.9% over the same period, signalling more moderate labour-cost pressure.

The ECB’s latest wage tracker points to broadly stable negotiated wage pressure of 2.6% in 2026 and 2.7% in the first quarter of 2027. Companies in the central bank’s telephone survey expected wage growth to fall from 3.1% in 2025 to 2.5% in 2026 and 2.4% in 2027.

The tracker covers active collective agreements and is not a complete measure of realised pay, which can include payments outside agreements and shifts in workforce composition. The ECB cautions that its forward-looking component is not an economic forecast and may deviate from the negotiated-wage indicator.

In its June projections, the ECB expected compensation-per-employee growth to fall from 3.9% in 2025 to 3.2% in 2026 and remain at 3.2% in 2027 and 2028. The projected path reflects weak near-term momentum, moderating wage agreements and a gradual improvement in productivity.

Wage moderation coincided with services inflation easing to 3.2% in June from 3.5% in May. The ECB attributed an important part of the monthly decline to softer transport and recreation-service prices, showing that wages matter for services inflation but are not its only driver.

Slower wage growth therefore reduces some domestic inflation risk but does not automatically imply rate cuts. The ECB held rates unchanged in July after raising them in June and said subsequent decisions would depend on the inflation outlook, underlying risks and policy transmission; services inflation also remained elevated, volatile and exposed to delayed energy-cost pass-through.