In the second quarter, wages in Germany continued to climb, surpassing inflation for the fifth consecutive time. Despite a 5.4% wage increase from April to June compared to the previous year, inflation was only at 2.3% during the same period. This resulted in a genuine wage boost of 3.1%.
The wage hike was particularly notable among lower-income earners. In Q2, the lowest income bracket experienced a 7.6% increase in nominal wages, while full-time employees saw a 5.7% improvement in their gross wages.
However, despite these wage gains, many households still grapple with high living costs. Germany's robust wage growth has improved purchasing power for its workforce, which was negatively impacted during economic challenges in 2020 and the aftermath of Russia's aggression against Ukraine.
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Wage growth expectations for 2023 suggest an increase of more than 5%, marking the highest nominal wage rise in 30 years. High inflation and the scarcity of skilled labor are driving these predictions. Yet, the impact of inflation on real wages has been significant. In 2023, inflation averaged 5.9%, and in 2024, it dropped to 2.2%. However, core inflation remained elevated at 3%, pointing to ongoing price adjustments in certain sectors.
High housing costs continue to present challenges for many households. The average rent for a one-bedroom apartment in the city center in Germany is approximately €887 per month. Other living expenses also contribute to the overall cost of living, which remains difficult for many families to afford.
However, real wages are expected to rise further, closing the gap between wage growth and inflation, and resulting in higher purchasing power by 2025. This lower inflation rate and increased nominal wage increases will alleviate some of the concerns related to household living costs.
