Friday, October 22, 2021

German workers strike for higher wages as inflation rises

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Newsletter: Europe Express

A growing number of German workers are demanding higher wages amid rising inflation, with some going on strike, causing economists to worry that widespread demands for higher wages could start a self-fulfilling inflationary spiral. in the largest economy in Europe.

German inflation rose to a 29-year high of 4.1 percent in September, while price growth in the 19 countries that share the euro is expected to reach a 13-year high of 3.3 percent in September, when official data is released later. on Friday.

Most economists believe that euro area inflation will rise near its all-time high of just over 4 percent, before disappearing next year. That also remains the main message to date from top central bankers like Christine Lagarde, president of the European Central Bank.

However, such forecasts could turn out to be wrong if higher prices trigger widespread wage increases that drive inflation even higher.

In one example, this week, workers at German motorhome maker Carthago went on strike over wages, demanding their share of the spoils of an increase in orders thanks to a pandemic-fueled surge in “holidays at home.”

“Inflation in Germany continues to rise,” said Frederic Striegler, an official at the country’s largest union IG Metall, explaining his demand for a 4.5 percent wage increase and additional early retirement funds for woodworkers. and plastics at Carthago and other companies in the Baden-Württemberg region in southern Germany.

“The motorhome industry has received so many orders and so many profits and employees only want a piece of the pie,” Striegler said, adding that more strikes were planned in two weeks at motorhome and caravan manufacturers as well as businesses. of furniture across the country. country.

Unions are making similar wage demands for German workers in other areas, such as banking and the public sector. This week, retailers and mail order companies in the Hesse region agreed to increase their workers’ pay by 3 percent this year and another 1.7 percent in April next year.

Harmonized Consumer Price Index Line Chart (Annual Percentage Change) Showing German Inflation Hitting 29-Year High

“The narrative that the German pay deals performed well this year is a thing of history,” said Carsten Brzeski, ING’s head of macro research. “The latest announcements show that unions are entering upcoming negotiations with demands tied to current inflation figures, not inflation expectations.”

Supply chain bottlenecks help drive inflation, which has already skyrocketed shipping costs and left manufacturers without products, from steel to semiconductors. On Wednesday, Lagarde said: “How long will it take for these bottlenecks to disappear is a question that we are monitoring very closely and this is on our radar screen.”

Another potentially inflationary factor is that unemployment continues to fall in both Germany and Europe, with more companies reporting labor shortages. The European Commission said the proportion of construction companies that reported a lack of workers was limiting their activities reached a record 27 percent in its latest survey.

Line graph of euro zone unemployment (%) showing rapid recovery of the labor market in Europe

The German association of freight and logistics companies has warned of a shortage of more than 60,000 truck drivers, which it expects to increase by 15,000 a year as more drivers retire than are trained.

However, the wage demands of German unions are still below the equivalent they were making before the pandemic, according to Allianz economist Katharina Utermöhl. who said: “We hope that wage demands are kept under control for now.”

Additionally, the country’s Kurzarbeit licensing scheme supported the salaries of just under 1 million people in July, but it will be cut by the end of the year. Utermöhl said this means that “the current record pace of recovery in the labor market is likely to accelerate in the coming months.”

As central bankers debate how “transitory” the latest rise in inflation will be, they are watching the progress of wage negotiations in Germany and elsewhere with particular interest. Lagarde has said the ECB will “watch very closely” this, adding: “At the moment, we are certainly not seeing widespread contamination of those price increases in wages.”

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