ECB Survey Shows No Wage Spiral Despite Iran Energy Shock

The European Central Bank (ECB) released its Survey on the Access to Finance of Enterprises (SAFE) on Monday, April 27, revealing a critical divergence that could shape the central bank's next policy move: euro zone firms expect near-term cpi" title="Understanding inflation and CPI in forex">inflation to surge on the back of the Iran war, but longer-term inflation expectations remain anchored and wage growth forecasts are actually declining.

Key Findings: Inflation Fears Without Wage Spiral

According to the Q1 2026 survey of 10,544 firms across the euro area, one-year ahead inflation expectations jumped to 3.0% from 2.6% in the previous quarter. However, three-year and five-year inflation expectations held steady at 3.0%, suggesting firms view the energy shock as transitory rather than structural.

Most significantly, wage expectations moderated to 2.8%, down from 3.1% three months ago. This contradicts the classic second-round effects that central banks fear during supply shocks—where rising energy costs trigger a wage-price spiral that embeds inflation into the economy.

The ECB explicitly stated in its release that the survey shows "scant signs of second-round inflation effects" despite the dramatic spike in energy prices. Daily responses collected before and after February 28 revealed that firms interviewed after the Iran war escalation reported sharply higher cost and price expectations, but wage and employment growth expectations remained broadly stable throughout the survey period.

Energy Shock Drives Input Costs, Not Labor Costs

The survey breakdown highlights where inflationary pressure is concentrated:

• Selling prices expected to rise 3.5% over next 12 months (up from 2.9%)
• Input costs (including energy) projected to surge 5.8% (up from 3.6%)
• Wages forecast to increase just 2.8% (down from 3.1%)

This data pattern suggests euro zone firms are absorbing margin compression rather than passing through the full energy shock to consumers or demanding compensating wage increases from workers. The ECB will interpret this as evidence that Europe's labor market remains weaker than the US, limiting workers' bargaining power even as inflation accelerates.

Implications for EUR/USD and ECB Rate Path

EUR/USD has retreated toward 1.1710 as traders digest the implications. MUFG strategists noted the pair is now in the middle of its 1.1400–1.2000 range, facing headwinds from the energy shock and weaker euro zone PMI data.

Market consensus has shifted decisively toward the ECB holding rates steady at 2.0% at its April 30 meeting. Forex.com analysts wrote that "a hike this week seems highly unlikely" given the stagflationary nature of the shock. However, the ECB will need to maintain a hawkish bias to keep inflation expectations anchored.

The survey data provides the ECB with a rare reprieve: Brent crude trading above $108 per barrel would normally force an immediate interest rate response, but the absence of wage acceleration allows policymakers to wait and assess whether the ceasefire holds.

Credit Conditions Continue to Tighten

Beyond inflation dynamics, the SAFE survey revealed deteriorating financing conditions for euro area firms:

• A net 26% of firms reported higher interest rates on bank loans, up from 12% in Q4 2025
• Other financing costs (fees, commissions) increased for a net 37% of firms, up from 28%
• Collateral requirements rose for a net 14% of firms
• Bank loan availability declined marginally (net -3%)

The general economic outlook was cited as the main constraint on external financing availability (net 26%), though banks' willingness to lend improved slightly. Firms reported broadly flat turnover over the past three months but expect a net 29% increase in turnover next quarter—up from 18% in the previous survey round.

What to Watch: Thursday's ECB Decision

The European Central Bank meets April 30 with markets pricing in zero probability of a rate hike. Key factors traders will watch:

• Forward guidance language – Will the ECB maintain optionality for June or July hikes?
• Inflation projections – Updated staff forecasts will reveal how policymakers view the energy shock persistence
• Wage commentary – President Christine Lagarde will likely highlight the SAFE survey's wage moderation data
• Oil price assumptions – ECB scenarios typically assume mean-reverting energy prices; they may need contingency plans if Brent stays above $100

For EUR/USD traders, the technical picture shows support at 1.1400 and resistance at 1.2000. A dovish ECB hold could push the pair toward the lower bound, while any hawkish surprise (such as signaling a June hike) could trigger a rally back toward 1.1850.

Broader Context: Stagflation Fears Across Central Banks

The ECB's dilemma mirrors challenges facing the Federal Reserve and Bank of Japan this week. All three major central banks confront the same impossible trade-off: energy-driven inflation that demands higher rates colliding with growth risks that argue for patience.

The Fed meets April 29–30 with Chair Jerome Powell facing similar constraints. US CPI surged 0.9% month-over-month in March—the largest increase since June 2022—driven by a 21.2% jump in gasoline prices. Yet core inflation remains contained at 2.6% annually, giving the FOMC room to hold its 3.5%–3.75% target range.

The critical difference: US wage growth remains elevated above 4% annually, while euro zone wage expectations are declining. This divergence could widen the monetary policy gap between the Fed and ECB, supporting the US dollar over the medium term despite current EUR/USD stability.

Technical Levels for This Week

EUR/USD key levels:

• Immediate support: 1.1650 (April low)
• Strong support: 1.1400 (range bottom)
• Resistance: 1.1850 (20-day moving average)
• Strong resistance: 1.2000 (psychological level and range top)

Volatility is expected to spike Thursday as the ECB and Fed announce decisions within 24 hours. Traders should implement tight stop-loss orders given the elevated geopolitical risk premium still embedded in markets.

The euro zone's relatively weak labor market positioning—evidenced by declining wage expectations even as energy costs soar—suggests structural headwinds for EUR strength. Unless the ceasefire collapses and oil surges past $120, forcing emergency ECB tightening, the path of least resistance for EUR/USD appears to be toward 1.1400 over the coming weeks.