LABOUR unions should avoid making excessively high wage demands that could further fuel inflation, a senior European Central Bank (ECB) official said today.

Although workers were justified in seeking higher salaries to compensate for soaring consumer prices, “a wage-price spiral must be avoided”, ECB vice-president Luis de Guindos said.

“Inflation will abate in the course of the year: we expect an average inflation rate of around 6% this year, with 3.6% in the last quarter,” he said in an interview with Germany’s Sueddeutsche newspaper.

“The trade unions may, however, be inclined to ask for excessive pay rises. We need to be careful,” he said.

In a wage-price spiral, where higher salaries push up business costs that in turn lead to further price increases, “no one wins”, De Guindos said.

Instead, he said, eurozone governments need to offer targeted support to help those hit hardest by inflation.

“People could then reduce their wage demands and the ECB would not have to tighten its monetary policy so much,” he said.

The ECB has raised interest rates by three percentage points since July to cool inflation, which has soared in the wake of Russia’s war in Ukraine.

Eurozone inflation has eased somewhat after reaching a peak of 10.6% in October, in part thanks to a drop in sky-high energy costs.

Consumer price growth in the 20-nation currency slowed to 8.5% in January, still well above the ECB’s target of 2%.

In Germany, Europe’s biggest economy, inflation reached 8.7% in January, figures released today showed.

The country’s largest union, IG Metall, staged a series of warning strikes late last year as it sought higher wages for almost four million workers in industrial sectors.

It eventually agreed to a below-inflation pay increase totalling 8.5% over two years.

Germany’s powerful Verdi union is currently demanding a 15% salary increase for Deutsche Post employees, which the company has dismissed as unrealistic. – AFP, February 9, 2023.