The inflation rate is rising sharply and poses massive challenges for some people. Many worry about how to finance their daily life. The demand for a salary increase initially seems sensible. We tell you what employees should know.
In German-speaking countries, the inflation rate has been rising sharply for some time, especially in Germany and Austria. In Germany, the inflation rate in September 2022 was a whopping 10 percent, in Austria it was even higher at 10.5 percent. These high inflation rates mean that consumers have to dig deeper into their pockets to finance everyday necessities. Or to put it another way: employees would have to earn around 10 percent more to be able to buy the same things as they did a short time ago. The costs are rising, but the salaries are not, which at first seems unfair.
High inflation can have different causes. The reason for the current extremely high inflation rates is a combination of increased consumer demand after the corona restrictions were lifted. In addition, production and transport costs are increasing worldwide because the supply chains have been disrupted during the pandemic. The war in Ukraine has led to shortages of raw materials that are reducing supply – especially in the case of energy and grain. This mixed situation leads to inflation rates that were last seen in Germany 50 years ago.
As part of a survey by the Ifo Institute, leading economists shared their assessment of future developments. The participating experts also expect high inflation rates in the euro zone for the coming years, for 2023 an average of 6.2 percent and for 2026 an average of 4.5 percent. Higher costs for private spending or perceived lower salaries will therefore continue to haunt employees for quite some time.
In Germany, the inflation rate is measured by the Federal Statistical Office. For this purpose, a fictitious shopping basket is used, which consists of the prices of 650 different goods that consumers use in their daily lives. In Austria, the Federal Statistics Office calculates inflation using a similar procedure.
In Switzerland, too, the inflation rate initially rose in 2022, albeit at a much lower rate. It even fell in September, to 3.3 percent from 3.5 percent in August. There are several reasons for the significantly lower inflation rate compared to Germany and Austria. The most important is probably that the franc is very strong compared to the euro. Imported products, especially from the euro zone, are therefore particularly cheap. In addition, small Switzerland can meet its energy needs to a large extent itself and is therefore less dependent on expensive energy imports.
As an employee, you are not entitled to a salary increase from your company to compensate for inflation. In Germany, however, the federal government is currently planning an inflation compensation law that is intended to relieve taxpayers. The law is intended to compensate for inflation-related additional burdens by adjusting the tax burden to inflation. Among other things, the draft provides for an increase in the basic tax allowance from 2023. This means that taxpayers have to pay less payroll tax.
In Austria, a tax compensation for the high inflation was already decided in September with the abolition of the cold progression.
For you as an employee, high inflation means that your salary is worth less or that you have higher costs. So it seems obvious to demand compensation in the annual salary negotiation or in the application process. However, we strongly advise against it. Why? Because everyone is affected by inflation. Not only you, but also all colleagues – and your company! Your company also has higher costs for energy, transport and logistics and has to live with higher purchasing prices.
You should always justify your desire for a salary increase with your performance.
In individual cases, you should not actively use the inflation rate as an argument for more salary – nevertheless, many companies also factor in higher salary costs due to the increased cost of living. According to a survey by the consulting firm Willis Towers Watson, four out of ten employers are planning to increase their employees’ salaries more than originally planned. Data from the Federal Statistical Office show that the nominal wage index in the first quarter of 2022 was 4.0 percent higher than in the same quarter of the previous year. However, due to higher consumer prices, real wages fell by 1.8 percent.
There are a number of companies that are considering paying voluntary inflation compensation or have already announced it. The car rental company Sixt, for example, was one of the first companies to announce that it would pay all employees a one-off bonus of 1,700 euros at the end of the year to compensate for inflation. According to a survey by the Handelsblatt, other DAX companies are considering following the example. The federal government has announced that inflation premiums will be treated in a similar way to corona premiums, i.e. that they are not taxable as a one-off payment.
Would you like a small economics digression? In fact, it is obvious that salary increases can even further fuel inflation: Higher salaries increase costs for companies. This in turn leads to companies having to raise prices, which in turn leads to higher costs for consumers and hence inflation. The result would be stagflation: a situation with low economic growth, high unemployment and rising prices.
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The original for this article “Salary increase due to inflation: What you should know as an employee” comes from kununu.