The NYT reports that the European Central Bank (ECB) is planning to start raising interest rates because of concerns about rising inflation, and more importantly (according to the article), inflationary expectations. The article warns that workers are getting uppity and demanding pay increases to compensate for inflation. As one example, it tells readers that "Lufthansa’s employees are demanding a 9.8 percent increase in wages." That's a pretty big pay increase -- very scary for inflation hawks. Of course the article does not tell us the time period of which this increase will take place. Is this a one-year hike where they will be back for more next year? Is it two years or three years? I don't know, and neither does anyone else who relied on the NYT for their information on this one. Needless to say, the time period makes a huge difference. More generally, it would be nice if the NYT drew out the issue here a bit more clearly. The ECB doesn't like inflation. (Who does?). Its plan for reducing inflationary pressures is raising unemployment to put downward pressure on the wages of less-educated workers. The people who lose their jobs and are expected to take pay cuts to allow the ECB to reach its inflation targets are factory workers and flight attendants, not doctors and lawyers. People may still view the ECB's call as the right one -- maybe there is no better way to keep inflation from spiraling out of control -- but let's put the facts on the table. The ECB is about to draft millions of low and middle income workers to be the front-line soldiers in its war on inflation. We should at least make sure that their sacrifice is recognized.
--Dean Baker
