ECB: Firms Expect Moderation in Selling Prices and Wage Increases

15 July 2024

By Isabel Teles – FRANKFURT (Econostream) – The European Central Bank’s Survey on the Access to Finance of Enterprises (SAFE), released Monday, showed that euro area firms expect price and wage increases to moderate and inflation to decline over a one-year horizon.

‘Selling prices were expected to increase by 3% on average (down from 3.3% in the previous survey round), while the corresponding figure for wages was 3.3% (down from 3.8% in the previous round)’, the ECB said in a press release.

Compared with other sectors, firms in the services sector expected a larger increase in selling prices, wage costs, non-labour input costs and employment over the next 12 months, the survey showed.

While cost pressures remained widespread, fewer firms saw a deterioration in profits, and there were less mentions of labour cost increases than in the previous quarter, the ECB said.

Inflation expectations continued to decline, according to the survey.

‘Median expectations for annual inflation in one, three and five years all stood at 3.0%, thus declining by 0.4 percentage points for the one-year horizon and remaining stable for the three and five-year horizons’, the ECB said. ‘For inflation in five years, 50% of firms perceived that the risks to the outlook were tilted to the upside, compared with just 10% who considered that the risks were on the downside.’

Over the next three months, firms have become more optimistic about the availability and conditions of bank loans, the survey showed.

‘[F]ewer euro area firms indicated a tightening of financing conditions in the second quarter of 2024 compared with the first quarter. The net percentages of firms reporting increases in interest rates on bank loans and increases in other financing costs both declined, falling to 31% (after 43% in the previous quarter) and 28% respectively (after 37% previously)’, the ECB said.