13.12.201723:24:00UTC+00German Wages Slightly Pick Up as ECB Awaits Inflation Spark

An index of negotiated wages increased 2.3 percent this year from 2016, according to a preliminary estimate of the Federal Statistics Office in Wiesbaden. The rise is the highest of the past three years but still falls behind the salary increases marked in 2012-2014.

Pay increases in Germany are closely watched as a key element to fuel the sustainable acceleration in inflation that European Central Bank President Mario Draghi hopes to see before withdrawing monetary stimulus.

Germany is enjoying record-low unemployment which should raise salaries. However, a tradition of restraint in pay demands and weak inflation in recent years have trimmed the pressure. In fact, real wages increased at its weakest pace since 2014 this year.

The moderate rise in pay, along with a stronger euro, may spell some trouble ahead for German consumers, who have been one of the drivers of the recovery in past years due to a mixture of almost-stagnant prices, cheap oil and low ECB interest rates.

“Wage inflation is rising in several member states,” said Mark Wall, Deutsche Bank's chief European economist. “A pick-up in inflation in the important German wage settlements in the first quarter could change perceptions. We expect wage growth to exceed its five-year trailing average.”

The index includes one-off payouts like holiday and Christmas bonuses, incentives and severance payments. Excluding those elements, the index increased 2.8 percent.