German central bank chief says higher wages justified, puts raise potential at 3 per cent

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BERLIN – The head of Germany’s central bank says higher wages would be justified in the country as the economy flourishes and inflation sags, and is putting the potential for raises at 3 per cent.

Bundesbank President Jens Weidmann told Wednesday’s Frankfurter Allgemeine Zeitung daily it is “in the nature of things and to be welcomed that wages rise more strongly than in times when the German economy was in significantly worse shape.”

Weidmann stressed that wage deals have to take account of individual industries’ situations, and that the bank isn’t interfering in pay negotiations.

Bundesbank officials, who traditionally have tended to advocate modest pay settlements, have started sounding a different note this month. That comes as the 18-nation eurozone grapples with an inflation rate that is too low — just 0.5 per cent in June, compared with the target level of just below 2 per cent.

Germany’s Federal Statistical Office estimated Wednesday that the annual inflation rate in Germany, Europe’s biggest economy, slipped to 0.8 per cent in July from 1 per cent in June.

Weidmann said it is important for wage negotiators to take account of “the aim of price stability” in the current situation, but that raises which go far beyond “a productivity-oriented increase” would be harmful.

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