ECB Survey: Eurozone businesses worry about lingering inflation and wage pressures

Businesses across the euro zone continued to report rising inflationary pressures and accelerating wage growth, even as the overall growth outlook grew increasingly dim, a European Central Bank survey of 71 large firms said, according to Reuters .

Worried about steadily rising inflationary pressures, the ECB raised interest rates more than expected on Thursday and promised further hikes.

“Companies continued to report a high size and/or frequency of sales price increases, as significant cost pressures are passed through the value chain,” the ECB said in a report today.

Rising energy and transport costs were the main concern for most businesses, while prices for most materials and component inputs also continued to rise, the ECB added.

Although the ECB has played down fears of wage growth so far, businesses have pointed to continued earnings growth.

“Most contacts saw wage pressures as gradually increasing,” the ECB said after contacts with 71 non-financial firms in late June.

“About three-quarters of contacts expected existing or future wage negotiations to result in higher wage growth in 2023 than in 2022, with most contacts placing wage growth in 2022 between 2% and 4%.”

Policymakers fear that if inflation remains high for too long, firms will begin to adjust their wage-setting practices, sparking a wage-price spiral that is difficult to break.

Even as prices and employment continued to rise, businesses also pointed to weakening consumer confidence that fueled fears of a recession later this year.

Although households have ample savings for now, they are likely to increasingly feel the financial pressure from high energy prices.

“Clearly there would also be negative scenarios if natural gas supplies were further constrained,” the ECB added.