European Central Bank’s Rehn says wage growth remains moderate with no second-round inflation effects

Olli Rehn, Governor of the Bank of Finland and a key voice on the European Central Bank’s Governing Council, delivered a message on August 19 that euro area policymakers have been hoping to hear for years: wage growth is behaving itself. Rehn stated that wage growth “has remained moderate” with “no clear signs of second-round effects.” In central banker speak, that means rising wages aren’t feeding back into consumer prices in a way that would force the ECB’s hand on rates. The numbers behind the reassurance The ECB’s own wage tracker tells a consistent story. Negotiated wage growth across the euro area is stabilizing around 2.6% for 2026, a meaningful decline from roughly 3% in 2025. Drilling into the quarterly figures, the trajectory looks even more encouraging. Negotiated wages rose 2.46% year-on-year in Q1 2026, down from 2.89% in Q4 2025. Rehn emphasized that keeping inflation expectations anchored is essential for maintaining these moderate wage trends. Why second-round effects matter so much The concept of “second-round effects” describes something intuitive. When energy prices spike (as they did dramatically after Russia’s invasion of Ukraine), workers demand higher wages t...