Euro zone companies see short-term inflation spiking to 3.0% from energy costs tied to the Middle East war. Longer-term outlooks hold firm. Wage demands ease. The European Central Bank’s latest Survey of the Access to Finance of Enterprises (SAFE), covering over 10,000 firms, reveals no brewing second-round effects—just as policymakers gear up for Thursday’s rate decision.
One-year inflation expectations leaped from 2.6% three months ago. Three- and five-year views? Unmoved. Firms project selling prices up 3.5%, input costs—including energy—climbing 5.8%. Yet wages? Expected to rise just 2.8%, down from 3.1%. Investing.com (citing Reuters, April 27, 2026).
“The war in the Middle East had significantly increased firms’ selling price and input cost expectations, without affecting wage expectations,” the ECB stated. A weaker labor market caps workers’ bargaining power. No spiral into persistent price hikes. Profits? A net 16% of firms anticipate declines this quarter.
And this matters. Second-round effects—where energy shocks feed into wages and broader prices—could force the ECB’s hand on rates. So far, absent. Markets have dialed back April hike odds. Mid-year tightening still in play, though.
Energy Surge Tests Anchored Expectations
Oil prices have nearly doubled since the U.S.-Israeli conflict with Iran erupted. Energy inflation dominates near-term fears. Firms’ responses span pre- and post-war periods, capturing the jolt. Short-term bets surged. Long-term anchors held.
Latvian policymaker Martins Kazaks echoed this weeks earlier: “It’s true we have not seen large second-round impacts materialise up to this point.” But vigilance remains. “This doesn’t mean it won’t happen and when it does, we need to be ready to act.” Reuters (April 16, 2026).
ECB Vice President Luis de Guindos warned in March: Monetary policy can’t block the initial hit from war on inflation and growth. But it can watch for spillovers into underlying measures, like food and fertilizers. Projections see core inflation risks skewed higher, up to 2.6% in benign scenarios. Reuters (March 23, 2026).
The ECB’s Economic Bulletin (Issue 2, 2026) flags the crux: Persistent energy shocks could trigger indirect effects. Yet longer-term market expectations hover near 2%. Resilience shows. European Central Bank.
Consumer surveys align. February data pre-war showed one-year expectations dipping to 2.5%. Three-year at 2.5%, five-year steady at 2.3%. Hellenic Shipping News (March 30, 2026).
But. Firms feel the pinch differently. A softer job market mutes wage pressure. Euro zone entered this episode post a hiring slowdown. Workers can’t easily demand offsets for costlier living.
Policy Path Hinges on Incoming Data
Several indicators drop this week: SAFE leads. ECB signaled no rush to adjust rates. Markets agree—April hold priced in.
Professional forecasters’ views from earlier surveys reinforce stability. October 2025 SPF pegged 2025 headline inflation at 2.1%, core at 2.4%, converging to 2% long-term. Energy moderation and euro strength aid. ECB Survey of Professional Forecasters.
July 2025 round saw even softer calls: 2.0% this year, 1.8% next. Reuters (July 25, 2025).
X chatter mirrors relief. Reuters Business posted the SAFE results, drawing trader notes on steady long-term bets and cooling wages. Open Outcrier and Trading Floor Audio highlighted the no-second-round theme. Posts from April 27, 2026.
Still, risks lurk. ECB models now track expectation shifts closely, per a March blog. Energy entrenchment could demand hikes. Climate factors add layers—higher temperatures lift five-year expectations 0.65 points per 0.5°C rise, per DNB research using ECB consumer data.
Firms brace. Profits squeeze. But no wage-price feedback loop. ECB watches. Data-dependent path ahead. Hold likely Thursday. Eyes on persistence.
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