The European Central Bank's latest Survey on the Access to Finance of Enterprises reveals that eurozone companies anticipate a more tempered rise in selling prices and wages over the coming year. The findings, released Monday, suggest that the recent inflation surge driven by energy costs has not yet triggered broader second-round price pressures.
Inflation in the eurozone remains near 3%, above the ECB's 2% target, largely due to elevated energy costs. Policymakers have been wary that persistent price growth could lift inflation expectations and fuel stronger wage demands, potentially creating a self-reinforcing cycle. The survey offers some relief on this front.
Selling Price Expectations Moderate
According to the survey, firms now expect selling prices to increase by 3.2% over the next 12 months, down from 3.5% in the previous quarter. Non-labor input costs, including energy, are projected to rise 5.2%, compared with an earlier estimate of 5.8%. The ECB noted that "on average, firms expected selling prices, non-labour input costs and wage expectations to rise more moderately over the next 12 months." Over 5,000 firms participated in the survey.
Wage Growth Expectations Ease
Wage growth expectations also softened, with firms projecting a 2.5% increase over the next year, down from 2.8% in the prior quarter. This moderation may provide policymakers with additional evidence that broader inflationary pressures have not become deeply embedded, despite high energy costs. The data comes ahead of the ECB's interest rate-setting meeting on Thursday, where markets widely expect rates to remain unchanged.
However, higher oil prices have increased expectations that the ECB could deliver another rate hike in September, potentially raising the deposit rate from its current 2.25%. The survey's findings will be a key input for policymakers as they assess the inflation outlook.
Inflation Expectations Remain Stable
While near-term expectations eased, longer-term inflation outlooks held steady. The survey showed one-year and three-year inflation expectations unchanged at 3.0%. The five-year expectation edged up to 3.1% from 3.0% three months earlier. This suggests businesses still expect price growth to remain above the ECB's target over the medium term, even as near-term cost pressures moderate.
The stable inflation outlook aligns with broader market sentiment. For context, recent data from the U.S. showed producer prices dropping 0.3% in June, easing inflation fears there. Meanwhile, a BofA survey indicated investor sentiment hit a 5-month high on AI capex and dovish Fed bets, highlighting global market dynamics.
Focus Shifts to ECB Policy Decision
The survey results will be closely watched as the ECB prepares for its policy meeting. With inflation still above target and energy costs elevated, the central bank faces a delicate balancing act. The moderation in wage and price expectations could reduce the urgency for further tightening, but the stable longer-term inflation outlook may keep policymakers cautious.
As the ECB deliberates, investors will also monitor other developments, such as the ECB's order for eurozone banks to submit AI cyber defense plans, which underscores the evolving regulatory landscape.
This article is for informational purposes only and does not constitute financial advice.
