Bundesbank Sees More Wage Pressure as German Inflation Nears 10%

The continued loss of workers’ purchasing power as well as Germany’s tight labor market are expected to result in growing upward pressure on salaries compared with the second quarter, the Bundesbank says in its monthly report. 

• While some wage agreements trended higher in the three months through June, pay rises remained significantly below the inflation rate
• Inflation should reach about 10% in the autumn as government-aid measures expire
  • Higher minimum wage, depreciation of the euro are stoking price pressures
  • Inflation outlook remains “extraordinarily uncertain” because of commodity markets
• Continued normalization of European Central Bank’s interest rates is appropriate with inflation risks skewed to the upside
• Probability of economic contraction in the winter has risen significantly due to developments on gas market
• Bundesbank says it’s important that further government measures to support the economy don’t eliminate price signals as they provide an incentive to save energy, for instance
• Return to the debt brake next year wouldn’t choke the economy, partly because special funds continue to provide fiscal space beyond the constitutional spending limit
• NOTE: ECB’s Nagel Wants More Hikes, Says German Recession Likely