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HomeEconomyAnalysis - Germany's 'very generous' pay deal could complicate ECB's inflation fight

Analysis – Germany's 'very generous' pay deal could complicate ECB's inflation fight


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By Francesco Canepa and Balazs Koranyi

The proposed deal would give 2.5 million workers in Europe’s largest economy a permanent 5.5% boost next year, in addition to next year’s A series of one-time payments for months to help them cope with the surge in living costs.

This would set an important precedent for other wage negotiations and could threaten the ECB’s forecast that wage growth will peak this year, which underpins the lowered its expectations for eurozone inflation back to the central bank’s 2% target 200.

“A permanent increase next year may cause some concern for the ECB as wages are supposed to Peaked this year,” said Natixis economist Dirk Schumacher.

Gilles Moec, chief economist at French insurer Axa, called the proposed deal “very generous”,

Economist Mark Cus Babic 1000 Barclays (London: 200BARC), saying it “could significantly boost aggregate wage growth”.

ECB expects overall wage growth in Euro currency The average growth rate of the country this year is 5.3%, which will drop to 4.4% next year, and

will drop to 3.6%.

Holger Schmieding, chief economist at Berenberg, said the German deal provided ECB policy hawks with “another argument that could Raise key rates at least two more times, at least without ruling out new 11 Basis point change on May 4th.

market The ECB is widely expected to hike rates by 25 percentage points next week, with the pace of tightening slowing this week amid lingering uncertainty in the financial sector and the lagged effects of past increases in borrowing costs.

Other economists point out that the German public sector pay deal came after a period of falling real wages, when prices rose faster than wages.

“The doves could argue that the deal came after a period of wage constraints and was reasonably early,” said Citi economist Christian Schultz. .

Marcel Fratzscher, former ECB economist Home, later founded the DIW think tank, it is estimated that, assuming

inflation rate of 6%, by the end of next year, The deal will reduce the purchasing power of public sector workers by 6% and 3%




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