The euro has fallen significantly against other major currencies. This contributes to high inflation, which, together with the tight labor market, opens the door to higher wages.
The Dutch labor market is under high tension. Statistics Netherlands announced this morning that unemployment has fallen to the level it was before the corona crisis. Currently, only 2,9% of the working population is out of work. This is mainly the result of a mismatch between talent and available jobs. According to Statistics Netherlands, there are no fewer than 128 vacancies for every hundred job seekers. Five years ago, there were still 35. The tension on the labor market is also dire in neighboring countries. In the UK, for example, unemployment fell from 4,8% to 4,3% in the past quarter. The Guardian already compared the shortage on the labor market with the 60s. Then, according to the British newspaper, a construction worker could resign in the morning and work for another company across the street in the afternoon for 10% more wages, according to the British newspaper. to go.
Nice salary increase
Working Britons are also making considerable progress without a job change. In October, the median monthly wage was 4,9% higher than a year earlier, according to the British counterpart of the CBS. Compared to February 2020, that wage growth even amounts to 7,8%. Dutch employees can learn something from this. In the Netherlands, collectively agreed wages were only 1,9% higher in the third quarter than a year earlier. While it is precisely in the eurozone that all workers have every reason to bet on a nice salary increase. Higher energy prices, interruptions in supply chains and shortages in, among other things, the chips market are hurting all over the world. But in our region, the weakness of the euro adds to this.
Weak euro has two sides
Lately, I've been talking to several entrepreneurs who are upset with exchange rate fluctuations in the foreign exchange market. In the past year, for example, the Chinese renminbi has appreciated by more than 8% against the euro. The dollar has become almost 5% more expensive and for the pound it is about 7%. This is favorable for the international competitive position of export companies. But another consequence of the weak euro is that import companies that did not hedge their currency risks are seeing costs rise sharply. The profit margin can only be maintained by increasing the sales prices. If you also look at all the other things that drive up prices, a salary increase is actually badly needed to maintain purchasing power.
This is how inflation could hurt later
However, wage increases also have a dark side. Companies may pass on the higher wage costs in prices – just as import companies do now with rising exchange rates. Due to the tight labor market, this could trigger another wage increase. Such a wage-price spiral means that inflation will remain high for a longer period of time. In that case, central banks can no longer get away with the argument that higher inflation is a temporary corona effect. There is a good chance that they will be very reluctant to raise interest rates. In the United States, for example, the national debt has skyrocketed from $2019 to $22,7 trillion since the end of 28,4. When interest rates go up, financing budget deficits and maturing loans becomes a lot more expensive. Central bankers are therefore a lot less happy about the current developments than anyone who is looking forward to a nice salary increase in 2022.
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