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Pedestrian zone in Munich: Germans continue to keep their money together

Photo: Sven Hoppe / dpa

Inflation has recently fallen significantly, and at the same time there have been generous inflation compensation bonuses and a higher minimum wage.

This means that many Germans finally actually have more money in their pockets again.

The purchasing power of German consumers increased in 2023 for the first time since 2019, as the Federal Statistical Office announced.

According to this, wages rose by 6.0 percent, the fastest they have been since 2008.

But in real terms there was hardly anything left because consumer prices rose almost as strongly, at 5.9 percent.

The bottom line is an increase of 0.1 percent compared to the previous year.

However, the Böckler Foundation, which is close to the trade unions, recently found that collective wages were developing weaker than inflation.

In 2023, with an average of 5.6 percent, they will probably have lagged behind inflation, as was said at the beginning of December, citing an evaluation of the collective agreements for a total of around 14.8 million employees.

Overall, however, wages have developed slightly better.

The inflation compensation premium particularly contributed to the positive development.

This tax- and duty-free payment of up to 3,000 euros per employee, which can also be paid out in several installments, is a voluntary payment by employers.

The increase in the minimum wage also had a positive effect.

This meant that last year, the fifth of full-time employees with the lowest earnings received the largest wage increase: they rose by 11.4 percent.

In 2020, the increased use of short-time work due to the corona crisis led to falling real wages.

In 2021 and 2022, high inflation ate up the nominal wage increase.

However, according to experts, there is a good chance that employees will have significantly more in their wallets by 2024.

Trade is weakening

“We should see the strongest increase in real wages this year since 2015,” said ING chief economist Carsten Brzeski.

"With an inflation rate of around three percent and nominal wage growth of four to five percent, good times are ahead for employees." Recently, the trend has been clearly pointing upwards: in the fourth quarter of 2023, real wages rose by 1.8 percent, also because the Inflation has fallen significantly.

The increasing purchasing power is good news for the weakening German economy.

However, ING expert Brzeski does not expect a consumption boom: “This will hardly help consumption, as fear of saving will probably increase again.”

According to GfK market researchers and the Nuremberg Institute for Market Decisions (NIM), consumers are holding on to their money due to the economic downturn and are saving more than they have in almost 16 years.

Retailers also had a surprisingly weak start to the year: their sales fell by 0.4 percent in January, adjusted for inflation (in real terms), compared to the previous month.

Economists had expected growth of 0.5 percent.

“The retail sector is continuing its crisis course,” said the chief economist at Hauck Aufhäuser Lamp Privatbank AG, Alexander Krüger.

“For sales to turn around, consumers would first have to shake off their bad mood.”