Germany's Scholz seeks broad alliance with unions to curb inflation

German Chancellor Olaf Scholz on Wednesday said he wants to join employers and labour unions in a concerted action to find ways of cushioning the effects of rising prices while preventing a spiral of inflation in Europe's biggest economy.

Germany, like other countries in Europe and beyond, already has seen inflation accelerate sharply since Russia's invasion of Ukraine pushed up fuel and food prices.

An official estimate this week showed the country's annual inflation rate jumping to 7.9 per cent in May, the highest rate since the winter of 1973-1974.

These price increases are probably still down to one-time shocks, but we must take care that this doesn't turn into a long-term development with excessive inflation rates, Scholz told the German parliament.

He said that debt-financed government aid was not a long-term solution, especially since Germany is aiming next year to honor a rule limiting its public borrowing after it was suspended during the coronavirus pandemic.

In Germany, wage deals are typically hammered out in negotiations between employers' organizations and unions that cover a whole industrial sector.

Scholz pointed to a recent agreement in the chemical industry as a very interesting solution. Employers and worker representatives agreed on a one-time payment of 1,400 euros (USD 1,500) per employee to help counter rising prices. But they also postponed talks on a formal wage increase until October, hoping the economic outlook will be clearer by then.

Scholz said the government plans to call on employers, labour unions and worker representatives to come together with the government in a concerted action against price pressure.

The proposal echoes a similar effort in 1967 to counter West Germany's first economic crisis.

Everyone will have to contribute something to address the current situation, the chancellor said.