What's going on?

German unemployment is at historically low levels and the result is that German wages are rising more quickly than in other European countries.

What does this mean?

German workers are getting paid more. �Since the wage increases recently agreed by major unions (of around 3%)�are significantly higher than current inflation, which was 0.3% in the twelve months to March, the effective cost of living will go down because people have higher salaries but prices to buy stuff like food, pay rent, etc. have not increased. Rising German wages are also good for Germany�s trading partners in the Eurozone. Why? Well, because other European countries should find it easier to compete against German companies now in selling goods across Europe (and globally), because the cost of making things in Germany increases as wages increase, and the German people are more likely to buy goods, benefitting companies that export into Germany.

Why should I care?

Wage growth tends to be good for companies that sell goods to consumers. �So if wage growth continues, expect to see continued strength in stocks of this sort of company. There is also possibly a negative side to this story: the very accomodating policies of the European Central Bank (e.g. the recently instated quantitative easing) may in fact be too accommodative for Germany. The same policies that are helping the weaker European economies (such as Spain) get back on their feet again, could be pushing the German economy to grow too strongly. This could lead to, for example, a bubble in real estate valuations that could prove a risk in the future. However, that is probably a risk for another day and the short and medium term trend will remain favourable for European stocks because companies selling goods to consumers benefit from this development.