Real incomes in Germany have fallen more sharply than ever before due to high inflation
High inflation is currently devaluing wages and salaries in Germany as never before. In the third quarter, incomes were nominally 2.3 percent higher than a year ago. At the same time, however, prices rose by more than eight percent. The bottom line is that real incomes shrank by 5.7 percent, according to the Federal Statistical Office. This was the highest loss since the statistics were introduced in 2008.
The current phase of real wage losses is also the longest to date. Already since the end of 2021 – i.e. before the start of the Ukraine war – real wages and salaries of employees have been falling. The pace of losses is accelerating. In the fourth quarter of 2021, real wages were 1.4 percent lower than a year earlier, in the first quarter of 2022 they were 1.8 percent lower, and in the third quarter they were already 4.4 percent lower. Nominal wages include gross salaries including special payments. Further information on the method of calculation can be found here.
It is not atypical for real incomes to fall at the beginning of an inflationary phase. Wages and salaries usually follow suit later. In Germany, too, the collective bargaining parties have recently agreed more substantial increases, for example in the major metal and chemical sectors. Even these agreements are still below the current inflation rate of around ten percent. They also carry the risk of further fueling inflation themselves, so that less purchasing power reaches employees in real terms. Economists then speak of a wage-price spiral or second-round effects.
The loss of real gross income is mitigated for many households by several effects. On the one hand, employers and collective bargaining parties are taking advantage of the new possibility of tax-free one-off payments, the “inflation compensation premiums”. They ensure that the gap in net income is smaller than in gross income. In addition, there are grants and subsidies from the state, such as the so-called “price brakes” for electricity and gas.
Economists at Deutsche Bank expect real disposable incomes of private households to shrink by around one to two percent all in all in the coming year.
Source of the news: https://www.msn.com/de-
