Economic Conditions in Germany Favour Wage and Price Increases, Bundesbank Says
24 May 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – Currently high inflation in Germany is feeding through to wages and prices, with improved economic conditions and the better outlook for energy making it more likely that unions will push for high inflation compensation packages, the Bundesbank said on Wednesday.
In its monthly report, the Bundesbank said that ‘now widespread and rather persistent inflation is leaving more and more traces in wage increases.’ According to the report, ‘the expected improvement in economic conditions and reduced uncertainty regarding energy supply favour efforts to compensate for previous real wage losses more strongly than before.’
‘There are strong indications that companies will partially pass on the increased wage costs to prices over the course of the year’, the Bundesbank said.
In the coming months, the inflation rate was ‘expected to continue – albeit only very gradually – to decrease, in line with the flattening price developments at the upstream stages of the economy’, the Bundesbank said.
However, the report said that ‘extraordinarily high price increases in non-energy components, the remaining pressure along the supply chains, and robust wage growth’ would ‘counteract the dampening effect of declining energy prices’ on inflation.
According to the report, economic activity in Germany was expected ‘to rise slightly’ in the second quarter of 2023. ‘Diminishing supply bottlenecks, a high order backlog, and decreased energy prices favour the continuation of the recovery in the industry.’
Despite ongoing high inflation, it was predicted that ‘real net incomes of private households should at least not further decline due to strong wage increases.’ This meant that ‘private consumption is expected to remain roughly stagnant.’
On the other hand, the construction sector was anticipated ‘to experience a decline in production.’ The ‘significantly decreased demand’ was ‘likely to take its toll’, the Bundesbank said.