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Wage Negotiations A Key Signpost For Future Inflation Pressures


German labour unions and state representatives today begin a third round of public service worker wage negotiations. The union, Ver.Di, is demanding wage increases of 10.5% or a minimum of E500 per month.

  • The outcome of the negotiations will directly affect 1.1mln workers and is usually also applied to the remuneration of civil servants, which number another 1.4mln, according to news outlet Der Spiegel. In total, this represents about 5.4% of the number of employed persons in Germany.
  • State representatives called the demands far too high and unaffordable - reports suggest some concessions from the unions are to be expected, however.
  • Such negotiations could play a key role in the disinflationary narrative (and associated ECB cut pricing) going into 2024, with the Jan/Feb wage negotiations data already expected to be strong - but the degree to which it signals elevated unit labour costs and labour-intensive services inflation will be important to the ECB's thinking.
  • Germany has been troublesome in this regard, with stagnant productivity leading to above-eurozone levels of unit labour cost growth (+7.8% Y/Y in Q3 on an hourly basis, vs 6.8% for the euro area). As MNI has previously noted, (Productivity Dynamics Make "Last Mile" Of Disinflation Look Long, Nov 23), with eurozone productivity running at a negative 1% Y/Y pace, theoretically wage growth would have to be around 1% for the ECB to have comfort that inflation was converging to the 2% target.
  • ECB’s Guindos earlier this week on the ECB “seeing very big wage increases” in parts of the Eurozone, making it necessary for the ECB to stay cautious on inflation dynamics. In an interview seen as uncharacteristically dovish, ECB's Schnabel noted with regard to services inflation in particular, "we’re going to watch upcoming wage agreements very closely. This will certainly also matter for our monetary policy decisions."


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