ECB Second-Round Wage-Inflation Transmission Simulator

Transmission Controls 12-Quarter Horizon

Nominal Wage Growth (y/y) 3.2%

Labor Productivity Growth (y/y) 1.1%

Profit Margin Absorption Capacity 45%

Energy / Import Price Shock 0.8%

Expectations / Indexation Inertia 25%

ECB Inflation Target (HICP) 2.0%

Mechanism: Unit Labor Cost (ULC) = Nominal Wage − Productivity. When corporate profits buffer ULC, second-round pass-through into core HICP remains bounded under the 1.25x spiral ceiling.

Unit Labor Cost (ULC) 2.10% Baseline labor cost push

Terminal Core HICP 2.05% +0.05% vs 2.0% target

Wage-Price Multiplier 1.08x Ceiling threshold: 1.25x

Implied ECB Deposit Rate 2.75% Taylor-rule reaction path

Second-Round Spiral

NO SECOND-ROUND EFFECT

Moderate wages absorbed by margins

Transmission Impulse Trajectory (12-Quarter Horizon)

Nominal Wage

Unit Labor Cost (ULC)

Core HICP Inflation

ECB Deposit Rate

2% Target

Quarterly Transmission Decomposition Quarterly model output across Q1–Q12

Quarter	Nominal Wage	Productivity	ULC Growth	Margin Buffer	Core HICP	ECB Rate