Jan Matena, employee at the Scheepsreparatie Gebr Matena BV ship repair yard, shapes a piece of metal in the workshop in Papendrecht, Netherlands. (Photographer: Simon Dawson/Bloomberg)

German Wage Deal Brings More Positive Inflation News for ECB

(Bloomberg) -- Germany’s public-sector workers and employers have agreed on a three-step series of wage hikes, providing the European Central Bank with fresh evidence of inflation-boosting pay deals and averting the threat of more disruptive strikes.

Wages for 2.3 million workers in federal and local governments will rise by an annual 3.19 percent on average retroactive to March, by another 3.09 percent next April, and by a further 1.06 percent in March 2020, according to an agreement struck in Potsdam. The deal finishes at the end of August that year.

Greg Fuzesi, an economist at JPMorgan Chase in London, said the accord showed German wage deals are in line with the forecast by the Bundesbank, which sees a gain of 2.75 percent for the whole of Europe’s biggest economy.

“If anything, they are stronger,” Fuzesi said in a note. “It is also encouraging that strong deals in the manufacturing sector were not one-offs but that other sectors are also seeing a pickup in pay growth.”

ECB officials are watching German collective-bargaining talks closely for signs that price pressures are finally on the rise in the euro area, allowing them to gradually remove monetary stimulus.

Germany’s IG Metall manufacturing industry union struck a deal with employers in February that boiled down to average annual wage increases of roughly 3.7 percent in 2018 and 4 percent in 2019.

‘Best Result’

ECB policy makers had less encouraging news on euro-area inflation on Wednesday, however, when data showed consumer prices in the 19-country bloc rose just 1.3 percent in March from a year earlier.

While that’s up from 1.1 percent the previous month, the reading falls short of a 1.4 percent initial estimate and remains well below the central bank’s target of just under 2 percent.

The public-sector agreement means Germany will be spared more of the stoppages that severely disrupted flights at airports including major hubs Frankfurt and Munich last week. Cologne and Bremen airports were also hit, as well as some local transport networks, city administrations, nursery schools, utilities and job centers.

Frank Bsirske, the chairman of the Ver.di union, called the outcome the “best result in many years,” while Interior Minister Horst Seehofer welcomed the prospect of 30 months of “social peace.”

©2018 Bloomberg L.P.

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