LONDON (FT) - Increasing numbers of German workers are demanding higher pay amid rising inflation, with some going on strike, causing economists to worry that widespread demands for higher wages could start a self-fulfilling inflationary spiral in Europe’s biggest economy.
German inflation rose to a 29-year high of 4.1 per cent in September, while price growth in the 19-countries that share the euro is expected to reach a 13-year high of 3.3 per cent in September, when official data are published later on Friday.
Most economists believe euro area inflation will rise close to its all-time high of just over 4 per cent, before fading next year. That also remains the main message to date of leading central bankers such as Christine Lagarde, president of the European Central Bank.
However, such forecasts could prove wrong if higher prices prompt widespread wage increases that send inflation higher still.
In one example this week, workers at German motorhome maker Carthago went on strike over pay, demanding their share of the spoils from a surge in orders thanks to a pandemic-fuelled rise in “staycations”.
“Inflation in Germany keeps going up,” said Frederic Striegler, an official at the country’s biggest union, IG Metall, explaining its demand for a 4.5 per cent pay increase and extra early retirement funds for wood and plastic workers at Carthago and other companies in the Baden-Württemberg region of southern Germany.
Unions are making similar pay demands for German workers in other areas, such as banking and in the public sector. This week, retailers and mail order companies in the Hesse region agreed to raise their workers’ pay by 3 per cent this year and a further 1.7 per cent in April next year.
Helping to propel inflation higher are supply chain bottlenecks, that have already sent shipping costs soaring and left manufacturers short of everything from steel to semiconductors. On Wednesday, Lagarde said: “How long these bottlenecks will take to fade out is a question we are monitoring very closely and this is on our radar screen.”
Another potentially inflationary factor is that unemployment continues to fall both in Germany and across Europe, and more companies are reporting labour shortages. The European Commission said the proportion of construction companies reporting a lack of workers was limiting their activities hit a record 27 per cent in its latest survey.