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Bundesbank warns inflation could jump

AFP · 5 Apr 2008, 11:30

Published: 05 Apr 2008 11:30 GMT+02:00

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Earlier this week German services union Verdi -- the biggest in the country -- and public-sector employers struck a deal on wage rises of around eight percent over two years for 1.3 million employees.

"The wage agreements are sharply higher than we expected," Bundesbank president Axel Weber told journalists while in the Slovenian capital for a meeting of EU finance chiefs nearby.

"We are going to have a close look at the (inflation) forecasts to see if public-sector wage deals don't make a revision necessary," he said, adding that those agreements often set the tone for other pay negotiations.

"We are concerned about that," he said, insisting that the German public sector was in a unique situation because it had gone without pay increases for several years.

Eurozone finance ministers and central bankers, meeting for two days in Brdo pri Kranju, Slovenia, warned on Friday that demands for big wage hikes could fuel a dangerous inflation spiral.

In the face of their warnings, at least 30,000 European trade union members were due to march in Ljubljana on Saturday as part of a drive for higher wages.

Inflation in the 15 eurozone countries jumped in March to 3.5 percent -- the highest level since the bloc was formed in 1999, according to official EU data earlier this week.

Story continues below…

In the face of such inflation, eurozone officials say that wage demands should not exceed productivity growth.

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