ECB survey shows scant signs of second round inflation effects

FRANKFURT, April 27 (Reuters) – Euro zone firms expect inflation to surge in the near term on the war in Iran but longer-term bets remained steady and wage growth is actually seen moderating, the European Central Bank’s Survey on the Access to Finance of Enterprises showed on Monday.

With energy prices rising sharply, the ECB is keenly watching how firms react, ready to jack up borrowing costs on the first signs that an energy-driven inflation surge will start pushing up wages or longer-term price expectations. 

But Monday’s survey of over 10,000 firms should ease some concerns in the run-up to Thursday’s policy meeting as the data does not appear to show these second-round inflationary impacts.

While inflation expectations for one year ahead jumped to 3.0% from 2.6% three months earlier, the three- and five-year ahead expectations were unchanged, the ECB said based on a survey that includes responses from both before and after the start of the war.

Instead of pushing up wage expectations, firms reported moderating wage bets, a result that is likely to support already widespread views that the ECB will keep interest rates unchanged on April 30. 

“The war in the Middle East had significantly increased firms’ selling price and input cost expectations, without affecting wage expectations,” the ECB said. 

Wages were expected to increase by 2.8%, down from 3.1% seen three months ago, supporting those arguments that the euro zone entered this inflationary episode with a significantly weaker labour market, which limits workers’ ability to demand compensation for higher prices. 

Firms expected selling prices to increase by 3.5% while input costs, including energy, were projected to rise by 5.8%.

This is one of the key reasons why a net 16% of firms expected their profits to decline during the quarter.

The SAFE survey is one of several indicators published in the coming days that will form the backbone of the ECB’s policy decision. 

Although the data can still sway the decision, the ECB has already said it was not in any sort of hurry to change rates and markets have largely priced out an April rate hike, even if a move by mid-year is still expected.

(Reporting by Balazs Koranyi; Editing by Toby Chopra)