Inflation Has Sent German Pay Back to 2016 Levels, Study Shows
(Bloomberg) -- Soaring prices over recent years have pushed inflation-adjusted German wages back to levels last seen in 2016 — boosting arguments for significant pay increases, according to a study whose results could worry the European Central Bank.
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“To compensate for the massive real wage losses of the two previous years, strong real wage increases are necessary in the coming wage rounds,” said Thorsten Schulten, a researcher at the Hans Boeckler Foundation, which has ties to the Confederation of German Trade Unions and whose Institute of Economic and Social Sciences, known as WSI, conducted the analysis.
“This is also important to stabilize the weak economic trend in Germany,” Schulten said.
ECB officials are closely monitoring pay developments as they seek assurances that inflation is headed back to their 2% goal before starting to lower interest rates. Sustained upward pressure could risk borrowing costs staying higher for longer.
Collectively agreed salaries in Germany – excluding inflation-compensation payments – rose by an average of 5.5% in nominal terms in 2023, according to WSI’s annual report on wages. While that’s double the pace of 2022, it represents a drop of 0.4% when last year’s 5.9% jump in consumer prices is factored in.
Schulten expects collective bargaining to be on an “offensive” footing in 2024, likely accompanied by industrial action. “The pressure is high now that many employees have lost price-adjusted income improvements of half a decade,” he said.
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