Negotiated wages in the eurozone rose 4.1% year-on-year in Q4 2025, according to the ECB's wage tracker, well above the level consistent with the 2% inflation target. Services inflation remained sticky at 3.9%, driven by labour-intensive sectors including hospitality, healthcare, and public administration where wage costs are the dominant input. The ECB has cut its deposit facility rate to 2.75% but President Christine Lagarde has signalled that the pace of further easing depends on wage moderation.
Country Divergence
Wage growth varies significantly across the currency bloc. Germany saw negotiated wages rise approximately 6% following major union settlements in the metals and chemicals sectors, with IG Metall securing deals above inflation for the first time in years. By contrast, wage growth in France was more moderate at approximately 3.5%, reflecting weaker union bargaining power and higher unemployment.
Southern European countries, particularly Spain and Portugal, have seen above-average wage growth driven by minimum wage increases. Spain raised its minimum wage to 1,134 euros per month in 2025, more than doubling the level from 2018 (735 euros). Youth unemployment, while still high at approximately 27% in Spain, has fallen from a peak of 55% in 2013.
Profit Margins
ECB research suggests that corporate profit margins, which expanded significantly in 2022-2023 as firms raised prices faster than costs, are now compressing as wage costs catch up. Unit labour costs have grown faster than producer prices in recent quarters, suggesting that the "greedflation" debate is shifting toward a "wagecession" concern, where rising labour costs erode corporate profitability and potentially lead to layoffs.
ECB Policy Dilemma
The ECB faces a difficult balancing act: cutting rates too aggressively could reignite inflation through the wage-price channel, while maintaining restrictive policy risks deepening the manufacturing recession already evident in Germany and other industrial economies. Market pricing suggests approximately two more 25 basis point cuts in 2026, taking the deposit rate to 2.25%.
For ECB wage data, visit ECB Negotiated Wages. For Eurostat inflation data, see Eurostat HICP.