Employers are making their contribution to the recovery of purchasing power now that the wage agreements in collective labor agreements are around 7.5 percent. President Klaas Knot of De Nederlandsche Bank (DNB) concludes this in conversation with the ANP. Although the wage increase is currently higher than inflation, he is not afraid that all that extra salary will now drive up the price level further.
Knot has argued for some time that there is room for companies to increase wages more, because many companies make large profits. ‘I said in December that wages could go up about 5 to 7 percent. I hold on to that.’
For a long time, companies were only willing to offer their employees more. But lately there have been many strikes and the pressure to come up with a substantial wage increase seems higher than ever. This week, AWVN, the most important employment conditions adviser to employers, reported that wage agreements in collective agreements in March exceeded inflation for the first time in a long time, which fell to 4.4 percent last month.
Wise
“We’re actually at the high end of what’s sensible,” Knot says of the pay rises. But he would have no problem with unions and employers agreeing more wage increases of this size later this year. “However, I would be concerned if we saw an ever-increasing increase.” Then a wage-price spiral is lurking, in which people have considerably more to spend, start spending more and thus encourage companies to further increase their prices.
For the time being, Knot does not have the impression that such a scenario is imminent. ‘The decrease to 4.4 percent inflation is mainly due to the fact that energy prices have fallen recently.’ Corrected for this, according to Knot, inflation is even higher. ‘And we should not forget that a lot of lost purchasing power has also been built up in recent years. It is quite possible that there will be a short period in which wage increases exceed inflation. Inflation will also need some time to die out.’
Curb
According to Knot, the European Central Bank (ECB) is making efforts to curb inflation by raising interest rates. He expects to see clear effects of this in the second half of this year, although he acknowledges that this prediction is still surrounded by uncertainty. He reiterates his appeal to the government to ensure that its fiscal policy does not drive inflation further. Knot has the impression that Minister Sigrid Kaag (Finance) agrees with him on this point, but the budget will be agreed by all cabinet members together.
