German wages rise at record pace in second quarter
German wages rise at record pace in second quarter

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German wages rose at a record annual rate of 6.6 percent in the second quarter, boosting consumer spending power but raising concerns that rising labor costs are driving up inflation.

That compares with a 5.6 percent wage increase in the previous quarter, the fastest increase since data began collecting in 2008.

For the first time since 2021, Germany’s annual wage growth has outpaced the country’s consumer price inflation rate (6.5% over the same period).

“Real wages have fallen for three years in a row. Now they are at least stagnant,” said Enzo Weber, research director at the Nuremberg Institute for Employment Research.

The data raised hopes that a rebound in German consumer spending could underpin the country’s economy, which has shrunk or stagnated over the past three quarters, as household incomes begin to catch up with the cost of living.

“This is good news for the economy because we need some level of wage growth to support a recovery in consumption,” said Oxford Economics economist Oliver Lacow. “While real wages eventually turned positive, they are still well below pre-pandemic trends.”

Line chart shows record wage growth in Germany has caught up with inflation

Wages for workers in Germany were boosted in the second quarter by a hike in the minimum wage and one-time bonuses that many companies paid to cushion the impact of rising inflation, according to Destatis. Federal Statistical Office.

Wages rose the most for the lowest-earning quintile of workers, who saw wages rise by 11.8% after the minimum wage was raised to 12 euros an hour last October. The maximum monthly income for tax-free part-time “mini” jobs has also risen from €450 to €520.

Wages rose the fastest in industries hardest hit by the pandemic, with wages for workers in the hospitality industry up 12.6 percent, arts, entertainment and leisure 11.9 percent and transportation and warehousing 10 percent.

The data are likely to heighten concerns among ECB policymakers about the risk of a wage-price spiral, in which high inflation pushes up labor costs, exacerbating price pressures. Analysts said that could turn the tables in favor of a tenth straight rate hike at the ECB’s next meeting on Sept. 14.

Melanie Debono, an economist at consultancy Pantheon Macroeconomics, said wage growth in Germany “would certainly push the ECB to raise rates in September”.

However, many of the factors behind Germany’s wage rise were “one-off events”, such as increases in the minimum wage and bonuses, Weber said, adding: “It was not enough to cause a wage-price spiral.”

GfK Market Research Group explain On Tuesday, German consumer confidence fell to -25.5 this month from -24.6 as people expect lower incomes. While the index has rebounded from record lows during the energy crisis last fall, it remains well below levels that had been positive before the pandemic.

The ECB predicts that firms will absorb the cost of higher wages by lowering profit margins. Dirk Schumacher, an economist at Natixis, said that looked likely, adding: “Weakness in consumption actually means that corporate margins will absorb some of this.”

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