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Real wages continue to rise in Germany, but experts remain cautious

Caspar Frey by Caspar Frey
September 2, 2024
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Real wages in Germany have increased for the fifth consecutive quarter, reflecting a rise in purchasing power. However, analysts are uncertain whether this will lead to higher consumer spending.

Real wages continue to rise in Germany, but experts remain cautious
The purchasing power of German people is improving – real wages have risen for the fifth quarter in a row.

Real wages increase, but consumer spending remains uncertain

Germany has seen a continued rise in purchasing power, with real wages increasing for the fifth quarter in a row. According to the Federal Statistical Office, real wages grew by an average of 3.1% from April to June compared to the same period last year. In the first quarter, real wages saw an even higher growth of 3.8%, the strongest since the start of the data series in 2008. During the spring quarter, nominal wages rose by 5.4%, while consumer prices increased by only 2.3%, allowing workers to retain a portion of their earnings increase.

Chancellor Olaf Scholz responded positively to the news on the social media platform X, stating, “People have more money in their pockets again.” He emphasized that those with lower incomes are the primary beneficiaries. However, despite the rise in purchasing power, private consumption has not increased as expected, contributing to the current economic stagnation in Europe’s largest economy.

Analysts are uncertain whether the trend will boost consumer confidence. Carsten Brzeski, chief economist at ING, noted, “Consumption remains the wildcard for the second half of the year.” He added, “If the football European Championship and real wage increases haven’t yet sparked significant consumer enthusiasm, caution is warranted for the coming months.” Brzeski pointed out that the labor market is cooling, and fears of job losses are resurfacing. Additionally, he cautioned, “The recent rise in real wages has not yet compensated for the losses in purchasing power from previous years.” He remains cautiously optimistic, predicting a modest recovery in consumption but no significant surge.

Inflation compensation bonus boosts purchasing power

A key factor contributing to the rise in purchasing power during the second quarter was the inflation compensation bonus. This tax- and contribution-free bonus can amount to up to €3,000 and can be paid by employers until the end of 2024. In addition, wage increases and one-time payments agreed upon in collective bargaining agreements supported the growth in real wages. Notably, significant wage increases were reported in the energy supply sector (+7.6%), transportation and warehousing (+6.8%), and the health and social services sectors (+6.7%).

In the last quarter, the largest wage increase was observed among the lowest-paid full-time workers, with nominal wages (not adjusted for inflation) rising by 7.6%. In contrast, the top fifth of earners saw a 5.7% increase.

Despite these positive developments, the consumer climate for September showed signs of weakening. A survey conducted by GfK and the Nuremberg Institute for Market Decisions (NIM) among 2,000 consumers revealed that confidence in the decline of inflation remains low. Ifo economist Klaus Wohlrabe explained, “Consumers are not yet convinced by the decline in inflation,” leading them to hold on to their money.

Tags: purchasing powerreal wages in Germany

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