Inflation is painfully high. But there is still a chance that the inflation rate will fall again. The trade unions have a special responsibility for this.

It is a pithy demand with which the IG Metall want to go into the collective bargaining on May 13: 8.2 percent more wages are demanded by the union. “In view of the sharp rise in prices, employees expect a decent increase in their monthly wages,” explains Knut Giesler, district manager of IG Metall NRW and chief negotiator in the north-west. “The steel manufacturers can also afford this thanks to the stable industry situation and the high profits.”

On the one hand, the demand is understandable. The prices are rising sharply. The inflation rate in Germany has been over seven percent in recent months. Many employees complain that the money is no longer enough. So raise your wages!

With such high demands, however, there is a risk of a wage-price spiral. Economists fear them because they could make inflation take on a life of its own. Put simply, a wage-price spiral sets a disastrous mechanism in motion: Because inflation is high, employees demand more money. Because of the rise in labor costs, companies are raising prices. This drives up inflation – which is why workers want more money and so on.

The so-called Kluncker Round in the 1970s is a cautionary tale in recent German history. It is named after Heinz Kluncker, the former head of the ötv trade union. Similar to today, Germany groaned under high oil prices. The Arab producing states had declared an oil boycott, which drove up prices and weighed heavily on the economy. In 1974, Kluncker pushed through an 11 percent wage increase, fueling the inflation problem even further.

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There is a great danger that IG Metall and other unions will get lost again. According to a survey by the Family Business Association, around 90 percent of companies fear a wage-price spiral.

The ECB also sees the danger: “There is no doubt that higher wage demands will come if inflation remains so high for a long time,” said Isabel Schnabel, a member of the Executive Board of the European Central Bank, in a recent interview. A reciprocal swinging up of wages and prices is not yet to be seen. “But we mustn’t react only when a wage-price spiral has already started.” In other words: If the trade unions are able to assert themselves with their high demands, monetary policy must slow down all the more. This increases the risk of a recession.

The IG BCE showed how things can be done better for the chemical industry with their collective bargaining agreement. She knocked out a whopping one-off payment for her employees in the amount of 1400 euros and thus helps them through the expensive wave.

The companies can cope with the one-time payment. Anyway, things went well in the end. Profits increased significantly. The dividends paid by listed companies to their shareholders provide an indication of this: According to calculations by DZ Bank, the sum totaled 57 billion euros for the past financial year – a new record.

However, the union waived a percentage wage increase, which would have led to a permanent increase in costs and thus a further increase in prices. Officials want to wait and see how inflation will continue. Negotiations are to be held again in the autumn. The hope is that the situation will have eased somewhat by then.


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