High inflation: collectively agreed wages with the smallest increase since 2010

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 on Thursday 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 collective bargaining employees in 2021 would be well below the inflation rate," according to 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.

According to the current Ifo economic outlook, the economic recovery and higher inflation could "only be reflected in stronger increases in regular tariffs with a time lag".

Is there a threat of a wage-price spiral?

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, this year, for the first time in a long time, high inflation rates will clearly exceed the collectively agreed 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.