In a press conference in the beginning of March 17, ECB President Mario Draghi stated that, “Higher salaries are “the linchpin of a self-sustained increase in inflation.”
Economic growth in Germany has become highly dependent on consumer spending. Last year, household spending increased by 2%.
For three consecutive years, workers in Germany enjoy a relatively strong increase in wages. According to the federal statistics authority (Destatis), last year the real wage growth was 1.8%. Without a doubt this enhanced consumer spending in Europe largest economy. This resulted into a 0.5% increase in the consumer price index.
Before this growth in wages, there was a long period of stagnation for German wages. Due to the previous stagnation, labour costs were reduced, which helped contribute to reinforcing the strong growth in the German economy.
Some groups realised changes earlier than other. Workers in the hospitality industry and the marginally employed experienced a faster growth in wages than other groups. This also happened in the previous years.
More good news encourages consumer spending! By the mid of 2017, the German Government agreed to an increase in pensions; 3.6% in the East and 1.9% in the western part of Germany.
Monetary Policymakers believe that an increase in wages will encourage consumers to spend more, which will improve the economy and decrease inflation to the ECB’s target of 2.0% and below.