Workers in Germany are experiencing large cuts in their purchasing power as modest pay rises fail to keep up with record-high inflation, the country's central bank said in a report on Monday.
In its monthly report, the Bundesbank also said upcoming wage negotiations will need to balance an uncertain economic outlook and concerns about job losses with persistently high inflation and labour shortages.
It said the economy should still be growing slightly this quarter, but it warned of headwinds from the rising cost of living and the fallout of Russia's invasion of Ukraine.
Basic pay rose by just 1.6% in the first quarter of the year once pandemic-related bonuses are stripped out, and even new contracts only showed moderate increases. Inflation was 7.4% in April, and the Bundesbank sees it at roughly 7% for the year.
"Currently, the increase in collective wages is still influenced by old agreements, which were struck in an environment of lower inflation rates and pandemic-related damage," the Bundesbank said.
"It should be noted that the increased price of largely imported fossil fuels reduce the scope for domestic redistribution," the Bundesbank added.
The central bank added that German economic output should still increase slightly in the second quarter of the year thanks to a relaxation of pandemic-related restrictions, which should boost consumption.
(Reporting By Francesco Canepa; Editing by Hugh Lawson)