January 5, 2017 / 11:30 AM / 7 months ago

German real wages rose less sharply in 2016 due to inflation - study

BERLIN (Reuters) - Real wages for German workers with collective agreements rose less sharply in 2016 than in the previous two years, a study showed on Thursday, suggesting consumers' purchasing power is being hit by rising inflation.

That could weaken future domestic support for overall economic output at a time when Europe's biggest economy is increasingly relying on private consumption to propel growth.

Household spending has become the most important driver of economic expansion in Germany as consumers are benefiting from record-high employment, increased job security, rising wages and low borrowing costs.

The study by the Institute of Economic and Social Research (WSI) showed nominal wages for the roughly 19 million workers with collective agreements rose by 2.4 percent on average in 2016.

Since the national inflation rate (CPI) rose to 0.5 percent last year, real wages increased by only 1.9 percent in 2016, the WSI study said.

That is a weaker increase than in the previous two years. Real wages of workers with collective agreements rose by 2.4 percent in 2015 and by 2.2 percent in 2014.

The next round of wage negotiations starts on Jan. 18, when Verdi, Germany's biggest white collar union, is set to demand a 6 percent pay hike for more than 2 million civil servants and other public sector employees at the regional level.

The government expects soaring private consumption and increased state spending to have propelled overall growth to 1.8 percent in 2016, the strongest GDP expansion in five years.

For 2017, Berlin predicts a slowdown to 1.4 percent due to weaker exports and fewer working days. With inflation expected to jump to 1.5 percent this year due to rising energy prices, that would further weaken consumers' purchasing power.

Reporting by Rene Wagner and Michael Nienaber; Editing by Catherine Evans

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