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German wages grow at record pace in second quarter

2023-08-30 10:58:00, Kosova & Bota CNA

German wages rose at a record annual rate of 6.6 percent in the second quarter, boosting consumer spending power but also raising concerns about inflation that could be boosted by rising labor costs.

The increase, which compared with a 5.6 percent increase in wages in the previous quarter, was the highest since records began in 2008.

The increase in wages also exceeded the increase in consumer prices, by 6.5 percent.

"Real wages have fallen for three years. Now they are at least stagnating," said Enzo Weber, head of research at the Institute for Employment Research in Nuremberg.

The figures raise hopes that a rebound in German consumer spending could support the country's economy, which has shrunk or stagnated for the past three quarters.

Second-quarter pay for German workers was boosted by minimum wage increases and one-time bonuses given by many companies to cushion the impact of higher inflation, according to the federal statistics office.

The lowest-paid fifth of the workforce enjoyed the biggest pay rise, as their pay rose 11.8 per cent following last October's increase in the minimum wage to €12 an hour. The maximum monthly income for "mini" tax-free, part-time jobs also increased from 450 to 520 euros.

The fastest growing wages were in the sectors hardest hit by the pandemic, rising 12.6 percent for service/hospitality workers, 11.9 percent in the arts, entertainment and recreation sectors and 10 percent in transportation and warehousing.

The figures could raise concern among European Central Bank policymakers about the risk of a wage-price spiral, in which high inflation raises labor costs and thus adds to price pressures. That could tip the balance in favor of a 10th consecutive interest rate hike at the next meeting of the ECB's governing council on September 14, analysts say.

Melanie Debono, an economist at Pantheon Macroeconomics, said rising wages in Germany "will definitely push the ECB towards a rate hike in September."

Market research group GfK said on Tuesday that Germany's consumer confidence index fell from minus 24.6 to minus 25.5 this month as people's income expectations fell.

Despite recovering from record lows during last fall's energy crisis, the index remains well below consistently positive pre-pandemic levels./ Monitor Magazine