Bundesbank raises inflation alert amid surging wages

Germany’s central bank, the Bundesbank, reported on Wednesday that wages in the country have been rising faster than anticipated, casting doubts on the expected continued fall in inflation, Reuters reported.

This comes as the European Central Bank (ECB) prepares to lower interest rates next month, with President Christine Lagarde expressing confidence that inflation is now “under control.”

However, the Bundesbank, the ECB’s largest shareholder, warned of potential inflation risks due to the higher wage growth as Europe’s biggest economy recovers.

The bank’s monthly report highlighted that collectively agreed earnings, including fringe benefits, rose by 6.2 per cent year-on-year in Q1 2024, compared to a 3.6 per cent increase in the last quarter of 2023.

Excluding one-off payments, wages increased by 3.0 per cent annually in the last quarter, faster than the previous three months.

The Bundesbank expects German inflation to rise from 2.4 per ent in April to a slightly higher level in the coming months, primarily due to unfavourable comparisons to last year, when train ticket prices and fuel costs fell.

The bank also anticipates the German economy to continue its recovery in Q2 2024, driven by a rebound in services.