Anticipated Rise in Inflation Due to Planned Minimum Wage Hike Among Germans
In a move aimed at boosting workers' purchasing power during a period of relatively high inflation, the German government has announced plans to increase the minimum wage. The minimum wage is set to rise from €12.82 in 2025 to €13.90 in 2026 and then €14.60 by 2027.
According to a survey conducted by the Insa Institute from June 27 to 30, reported by Bild newspaper, the majority of German citizens (76%) expect inflation to rise due to the planned minimum wage increase. However, economic experts argue that these increases will help workers cope with recent high inflation and translate directly into increased consumption, stimulating the economy without excessive inflationary pressure.
The phased nature of the wage hikes is seen as allowing the economy time to adjust, minimizing sudden inflation spikes. This cautious but optimistic stance on the minimum wage hike’s inflationary impact and its ability to support the German economy amid structural challenges is shared by many.
The minimum wage increase enjoys broad consensus from employers and unions, but it has nuances in political support. The Social Democrats (SPD), part of the governing coalition, had pushed for a higher minimum wage of €15 per hour but accepted the commission's somewhat lower targets. Employer representatives acknowledge the rise will increase labor costs but emphasize the positive effect on consumption. The services sector union Verdi praised the increase as a significant improvement for low-wage workers.
However, some sectors like the automotive industry face compounding cost pressures from both minimum wage hikes and other factors, which could squeeze profit margins and accelerate structural declines and job cuts. The automotive sector’s challenges reflect broader uneven impacts across industries, but the overall economy is expected to benefit from increased consumer spending.
The minimum wage increase aims to balance raising workers' incomes amid inflation without triggering runaway inflation. It is a move that reflects a consensus reached by an independent commission comprising employers and trade unions, despite political pressures. The announcement of the implementation of this recommendation was made by Federal Minister of Labour, Barbara Bas (SPD).
The survey results showed that the majority of German citizens expect inflation to rise due to the planned minimum wage increase, while 15% of German citizens do not expect any price effect from the minimum wage increase. A further increase to €14.60 is planned for 2027. However, 9% of German citizens did not express an opinion about the price effect of the minimum wage increase.
This news comes as inflation in Germany has recently moderated, with consumer price inflation at around 2.1% in April 2025 and core inflation near 2.9%. The Council of Economic Experts called the decision to increase the minimum wage in a phased manner a "wise decision" for this reason.
Sources: - Bild newspaper - ntv.de, AFP
- The phased implementation of the increased minimum wage, according to economic experts, will help minimize sudden inflation spikes and translate directly into increased consumption, thereby stimulating the economy without excessive inflationary pressure, as stated in the government's employment policy and community policy.
- The announced increase in the minimum wage, although putting pressure on certain sectors like the automotive industry due to compounding cost pressures, is expected to boost consumer spending, contributing positively to the German economy, as agreed upon by both employers and unions, and reflected in the employment policy discussions.
