July 30, 2014 / 2:05 AM / 4 years ago

Bundesbank chief welcomes inflation-busting German wage gains

FRANKFURT (Reuters) - Bundesbank chief Jens Weidmann has welcomed above-inflation wage increases in some sectors in Germany, where price pressures are firmer than in many other euro zone countries but still weak.

File photo of Germany's federal reserve Bundesbank President Jens Weidmann in front of the Bundesbank headquarters during a photo shoot with Reuters in Frankfurt May 17, 2013. REUTERS/Kai Pfaffenbach/Files

The Bundesbank historically has been a strong advocate of wage restraint, but with euro zone inflation stuck below 1 percent and consumer prices rising just 1.0 percent in June in Germany, Europe’s biggest economy, some now fear deflation.

Labour unions in Germany have been getting above-average pay hikes in the past year after a decade of wage restraint. In April, 2.1 million public sector workers agreed to a 3.0 percent pay rise for this year and 2.4 percent for next.

“(It is) to be welcomed that wages are rising more strongly again”, Weidmann told the Frankfurter Allgemeine Zeitung newspaper in comments to run in its Wednesday edition.

“In a series of sectors and regions, we have near-full employment and reports of labour shortages are piling up.”

Weidmann attributed wage gains of 3 percent to inflation of some 2 percent over the medium-term, plus productivity growth of 1 percent, the newspaper reported him as saying.

Other Bundesbank officials, and also the European Central Bank, have welcomed higher wages in Germany but the comments from Weidmann are the first to show he supports the trend.

Euro zone inflation is running at 0.5 percent, far below the ECB target of just under 2 percent.

The ECB last month cut interest rates to record lows and launched a series of measures to pump money into the sluggish euro zone economy to try to stave off the risk of Japan-like deflation.

One of the measures was a plan - yet to be launched - to buy asset-backed securities. Weidmann warned the ECB against loading up on such paper, saying such purchases “would be problematic if the (euro zone) central banks thereby took on bigger risks, which in effect would be diverted to the taxpayer”.

Writing by Paul Carrel; Editing by Gareth Jones

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