German Wage Round for 3.8 Million May Fuel Inflation, Lobby Says

(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast. Author of the article: Bloomberg News Rainer Buergin A IG Metall union flag during a demonstration againts cutbacks outside the Mercedes-Benz AG Werk 40 (W40) factory, operated by Daimler AG, in Berlin, Germany, on Thursday, Nov. 12, 2020. The head of…
German Wage Round for 3.8 Million May Fuel Inflation, Lobby Says

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Author of the article:

Bloomberg News

Rainer Buergin

A IG Metall union flag during a demonstration againts cutbacks outside the Mercedes-Benz AG Werk 40 (W40) factory, operated by Daimler AG, in Berlin, Germany, on Thursday, Nov. 12, 2020. The head of Mercedes-Benz’s engine plant in Berlin has left the company to join Tesla, Reuters reports, citing German union IG Metall. Photographer: Liesa Johannssen-Koppitz/Bloomberg Photo by Liesa Johannssen-Koppitz /Bloomberg

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Germany’s upcoming collective-bargaining round for 3.8 million workers in the engineering industry could fuel inflation in Europe’s biggest economy, the head of the Gesamtmetall employers’ lobby in the state of North Rhine-Westphalia warned.

“I can only warn urgently against fueling inflation even further through excessive wage agreements in the most important industrial sector for the German economy,” Arndt Kirchhoff said in a commentary published in Frankfurter Allgemeine Zeitung. “What is required is a collective bargaining policy toolbox that takes into account the extremely heterogeneous situation in the companies.” 

The executive board of Germany’s powerful IG Metall labor union will make a recommendation on the wage demand Monday, and the regional collective-bargaining chapters of IG Metall will decide their demands on that basis. A press conference is scheduled for 3 p.m. in Frankfurt. Collective bargaining will begin in September. 

The union won wage increases of 6.5% and a one-time payment of 500 euros ($525) for some 75,000 workers in the steel industry, the biggest jump in 30 years, it said on its website. That mustn’t set a precedent, Kirchhoff said.

Relief Measures

“The steel agreement can certainly not be a blueprint for the German metal and electrical industry in view of the special economic situation in this industrial sector,” he said. “Our industry as a whole is still clearly below pre-crisis levels.” 

Kirchhoff said he’s “aware that rising consumer prices are a major concern for our employees” and urged the government to provide “substantial relief.”

Germany’s ruling coalition is working on a package of measures to ease the impact of rising energy costs for consumers, the Bild am Sonntag newspaper reported, citing an interview with Greens Party co-leader Ricarda Lang. Additional government spending should be targeted to help those most in need, including pensioners on low incomes, she said.

German inflation hit another all-time high in May, adding urgency to the European Central Bank’s exit from crisis-era stimulus. Consumer prices jumped 8.7% from a year ago, driven by soaring energy and food costs, more than analysts predicted.

ECB President Christine Lagarde said after a council meeting in Amsterdam this month that inflation risks “are primarily on the upside,” also because of higher-than-anticipated wage increases, though there is no risk as yet of a wage-price spiral.

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