Thursday, December 16, 2021
When the inflation rate is high
Collective wages barely increased in 2021
According to the current balance sheet of the Federal Statistical Office, collective wages in Germany rose only slightly in 2021. At the same time, consumer prices have increased significantly faster: wages are likely to lag behind prices in the coming year as well.
The purchasing power of the millions of employees in Germany suffered from the lowest wage increase in at least eleven years and from high inflation in 2021. The collective wages including special payments grew by an average of 1.3 percent, as the Federal Statistical Office announced after preliminary calculations. “This would be the smallest increase in collective wages since the beginning of the time series in 2010,” it said. In contrast, consumer prices are likely to rise significantly faster by around three percent. “This would mean that the earnings development of the collective bargaining employees in 2021 would be well below the inflation rate,” said the statistician.
The Ifo Institute assumes that prices will rise faster than collectively agreed wages in the coming year as well. According to the Munich researchers, the latter is likely to increase by 2.4 percent, primarily due to one-off payments, but the inflation rate will again be significantly higher at 3.3 percent. The economic recovery and higher inflation could “only be reflected in stronger increases in regular tariff rates with a time lag”, according to the current Ifo economic outlook.
Inflation in the previous year extremely low
The collective bargaining round in 2021 was still shaped by the uncertain course of the corona pandemic and the associated economic uncertainties, the collective bargaining archive of the union-related WSI Institute recently determined. “As a result, this leads to rather moderate increases in collective wages,” said its head Thorsten Schulten. While in 2020 employees were able to record strong real wage growth due to a very low inflation rate of 0.5 percent at the time, high inflation rates this year for the first time in a long time will again significantly exceed the collective wage increases.
Some economists fear that due to the higher inflation, sooner or later the unions will be able to push through significantly stronger wage agreements in order to curb purchasing power losses. Sharply rising personnel costs, in turn, could prompt companies to raise their sales prices sharply in order to maintain profit margins. This could set in motion a spiral of ever increasing prices and wages.