Unions' Pay Resolve Hardens as Inflation Accelerates

The news that German consumer price inflation accelerated sharply in January is set to add new momentum to the wage claims presented by some of the country's leading trade unions in forthcoming pay talks.

Metals and engineering Trade union IG Metall, which will go into industry-wide pay talks in March with a pay claim of 6.5%, said the inflation data bore out the hard line that it has assumed over the latest pay round. "Members' expectation swill rise further," the union's vice-president, Jürgen Peters, told Handelsblatt.

If the latest inflation data had been released when the union's pay claim was drawn up, the union would be asking for more than 6.5%, he added.

Even the moderate IG BCE, which covers mining, energy and chemicals, said it's now expecting tension over pay.

German consumer prices rose 0.9% on the month and 2.1% on the year, the Federal Statistics Office reported on Thursday. In December, they had risen 0.1% on the month and 1.7% on the year.

The statistics office said that the introduction of euro cash did not have any appreciable influence on inflation.

Annual inflation in January rose above the European Central Bank's ceiling of 2% for the twelve-nation euro-zone.

But the ECB said it did not expect German inflation to remain at its current level, and it's expecting annual inflation in 2002 to come in clearly below the 2% ceiling, though it did stress that this was based on the crucial assumption that the wage restraint currently exercised by workers within the euro-zone would continue.

In its January report, the ECB makes it clear that it views the upcoming round of wage talks with some concern.

Gesamtmetall, the employers association for the metals and engineering industry is still hopeful that it can keep any wage increase within the rate of inflation. The association's president, Martin Kannegiesser, estimated the average productivity increase at 1.8%.

He said any pay increase at above this rate would end up costing jobs.

"To ensure that more jobs can be created, we will have to see wage rises of less than 3%," said Martin Hüfner at HypoVereinsbank. And Hüfner said in view of the inflationary threat posed by high wage claims, he's not expecting the ECB to cut interest rates.

And he noted further factors that militate against a rate cut: growth in euro-zone money supply, the new-found restraint on interest rates shown by the Federal Reserve, as well as the latest signs of an economic recovery in the United States and in Europe.

Meanwhile, the ECB's vice-president, Christian Noyer, was reported at the start of the week to have said that the bank's future interest-rate moves would depend on the behavior of wage negotiators as well as the pace of the economic recovery.