German wages barely grew in 2021 despite skyrocketing inflation

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FILE PHOTO: Passengers wear face masks at Friedrichstrasse station during COVID-19 lockdown in Berlin

BERLIN – German collectively agreed wages barely grew this year despite soaring inflation, data showed on Thursday, effectively leaving consumers with less money in their wallets, which could hurt future household spending in Europe’s largest economy.

The Federal Statistics Office said the negotiated wages of unionised employees rose by an average of 1.3% on the year in 2021, the smallest increase recorded since the office began compiling the data in 2010.

With consumer prices projected to rise by 3% this year, workers suffered an actual drop in real wages.

Central bankers and policymakers are watching wage developments in the euro zone very closely. They are looking for any hints as to whether rising consumer prices lead to higher wages which could mark the start of a wage price spiral and lead to higher inflation also in the medium term.

The decline in real wages bodes ill for future household spending which was the sole driver of gross domestic product growth in the third quarter in light of supply bottlenecks and production problems in the industrial sector.

Restrictions to break a fourth wave of coronavirus infections are likely to hurt retail sales and business in the services sector, knocking away Germany’s last pillar of growth in the final quarter this year.

The new chancellor, Olaf Scholz from the centre-left Social Democrats, has vowed to raise the national minimum wage by around 25% to 12 euros an hour next year.

(Reporting by Michael Nienaber; Editing by Hugh Lawson)

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