Eurozone: Olli Rehn considers wage growth moderate and dismisses second-round inflation effects

Wednesday 19 August 2026 - 08:17

The Governor of the Bank of Finland and a member of the Governing Council of the European Central Bank, Olli Rehn, believes that wage growth in the eurozone remains contained. He currently does not see any clear signs of a "second-round" mechanism, where an acceleration in wages would in turn fuel a new, sustainable rise in prices.

Wages show no new push

Olli Rehn delivered a rather reassuring message on the evolution of wages in Europe on Wednesday. In the text of a speech given in Stockholm, the Finnish official indicated that wage growth and wage expectations remain moderate.

This assessment is particularly monitored by the ECB, as wage developments are one of the indicators used to evaluate the persistence of inflationary pressures.

For now, Rehn does not observe clear signs of second-round effects. In other words, rising prices do not seem to provoke a lasting spiral where employees would demand sufficiently large increases to raise business costs and, in return, cause further price hikes.

Inflation expectations remain crucial

The head of the Finnish central bank emphasizes, however, a key element: the necessity to keep inflation expectations firmly anchored.

For the ECB, the stability of these expectations plays a major role in controlling medium-term inflation. If households, businesses, and employees begin to sustainably anticipate high inflation, these expectations can influence wage negotiations, pricing decisions, and, more broadly, economic behavior.

Olli Rehn thus believes that the current situation remains favorable, but it must be preserved by a sufficiently credible monetary policy.

A key indicator for monetary policy

The question of wages is particularly important in the current context. Previous analyses by the ECB have already noted a slowdown in wage growth and the absence, so far, of signs of second-round effects related to wages. However, the institution's data highlights that wages react with some delay to economic developments.

This timing therefore requires monetary authorities not to draw overly hasty conclusions based solely on the available data.

A future acceleration in wages could alter the risk assessment, especially if it coincides with a rise in inflation expectations.

ECB retains room for assessment

Olli Rehn's remarks do not provide an explicit indication of the ECB's next rate decision. However, they shed light on one of the elements monitored by the members of the Governing Council.

The next monetary policy announcement from the ECB is scheduled for September 10. Until then, the evolution of prices, wages, inflation expectations, and economic activity will continue to feed into the risk assessment.

The message sent by Rehn is therefore twofold: the wage dynamics do not seem, at this stage, to constitute a new major source of inflationary pressure, but the stability of this situation will depend, in part, on the ECB's ability to maintain confidence in its price control trajectory.