German finance minister says risk of wage price spiral is real

BERLIN (Reuters) -Germany’s finance minister warned on Monday that rising wages could further fan inflation, adding that parties involved in collective bargaining had a responsibility to help prevent that from happening and that one-off payments might be needed.

German inflation hit an annual 7.8% in April, the highest in more than four decades, which is expected to fuel wage demands.

Wage agreements for some 10 million workers are up for re-negotiation in Germany this year, according to the German federation of trade unions. Powerful union IG Metall last month raised eyebrows with a demand for an 8.2% pay hike for over 70,000 steel workers.

“The risk of a wage price spiral is real,” Christian Lindner told Reuters on Monday.

Lindner, who is also leader of the business-friendly FDP party, said that the companies and unions negotiating wage agreements had a great responsibility in preventing the wage price spiral, adding that they had in the past always lived up to it.

“There are already signs that one-time payments could play a role this year,” Lindner said.

He also said that the government must ease perceived inflationary pressure on net incomes.

“We intend to do exactly that with relief packages,” he said.

Germany’s ruling coalition in March agreed a second package of measures in as many months to give its people some relief from soaring power, heating and fuel costs.

(Reporting by Christian Kraemer; Writing by Maria Sheahan;Editing by Alison Williams)