German postal workers get double-digit pay rise to stave off strike

Germany has averted a looming postal strike after Deutsche Post DHL Group pledged double-digit wage increases that would compensate its workers for higher living costs but would add to central bankers’ fears of persistently high inflation.

The two-year contract for 160,000 workers was agreed in final negotiations after 86 percent of Deutsche Post workers voted in favor of an indefinite strike last week.

It’s the latest sign that German unions are stepping up calls for higher wages in response to inflation, which rose to a 40-year high of more than 10 percent last year. Unions are planning strikes at several German airports on Monday and on public transport later this month to reiterate their calls for double-digit wage increases.

The potential for rapid wage growth, which could fuel further price increases and keep inflation high through a so-called wage-price spiral, is one of the big concerns for the European Central Bank as it prepares to hike interest rates for a sixth meeting on Thursday.

Carsten Brzeski, an economist at Dutch bank ING, said “double-digit wage increases will fuel core inflation,” referring to the rate of growth in prices excluding energy and food, which hit a record high in the euro zone in February. “It’s the big driver of turning what started as a supply-side inflation problem into a demand-side inflation problem,” he added.

ECB chief economist Philip Lane said last week that “high wage growth projected for 2023 and 2024 is expected to make wages an increasingly dominant driver of underlying inflation in the euro area”. He added that “a close scrutiny of the latest wage developments is a high priority”.

Recent wage negotiations in the euro zone resulted in wage increases of 4.4 percent for workers last year and 4.8 percent this year, according to the ECB’s experimental negotiated wage growth tracker. Lane said that was higher than levels consistent with a return to his 2 percent inflation target.

As part of the collective bargaining agreement announced at the weekend, Deutsche Post is granting each employee tax-free one-off payments totaling EUR 3,000 between May of this year and March 2024, after which their monthly salary will increase by EUR 340. An average increase of 11.5 percent was said to have occurred.

Thomas Ogilvie, Deutsche Post’s chief human resources officer, said the deal “went past our financial pain point” and pointed out that the regulation left the company “little room for price increases”.

Average wages in Germany rose 3.5 percent last year, leaving workers significantly worse off in real terms after inflation hit 9.2 percent. The country’s central bank forecasts that inflation will remain above 6 percent this year.

Dirk Klasen, Deutsche Post’s communications chief, said he couldn’t remember having had such a big pay raise since he joined the company more than 20 years ago. The deal is much more generous than the previous one, which was agreed over a year ago to give staff a 2 percent pay rise, but fell short of the Verdi union’s demand for a 15 percent increase.

“This is a good result that could not have been achieved without the pressure and the willingness to strike from our members,” said Verdi chief negotiator Andrea Kocsis.