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We will have to talk about wage indexation... - Economic Policy

We will have to talk about wage indexation… – Economic Policy

Adding an extra hurdle to all that businesses already have to avoid today, we honestly can’t afford.

This straw fire that was going to die out quickly turned into a forest fire. In our country, consumer prices today are 8.3% higher than in March. It is even 9.3% if we take the calculation method used to harmonize the indices between European countries. The causes of the blaze are multiple: the tonicity of the recovery after confinement and the modifications caused by the energy transition. But obviously, much of the upside comes from disruptions in supply chains, put under pressure by covid and the war in Ukraine. The surge in prices is likely to reach its climax next winter, when it will be necessary to warm up and…

This straw fire that was going to die out quickly turned into a forest fire. In our country, consumer prices today are 8.3% higher than in March. It is even 9.3% if we take the calculation method used to harmonize the indices between European countries. The causes of the blaze are multiple: the tonicity of the recovery after confinement and the modifications caused by the energy transition. But obviously, much of the upside comes from disruptions in supply chains, put under pressure by covid and the war in Ukraine. The surge in prices is likely to reach its climax next winter, when it will be necessary to heat up and our shortages of gas and oil will become glaring. Central banks seem helpless. What can they do against tanks? However, it is their duty to try not to add fuel to the fire. This is why one day or another, the rates will go up, because the economy before the war in Ukraine had started to heat up. Covid had shifted some of the demand from services to consumer goods, the prices of which have inflated. Demand further reinforced by the aid, sometimes poorly targeted, granted to households during the pandemic. A little cold water would be good. Businesses are responding. You will see in the following file that they use all the levers in their power to find solutions: cash, inventory management, relations with suppliers and customers, technology to be less greedy in energy and raw materials, flexibility teams to produce a lot when input prices fall and slow down when they rise… Often remarkable agility. There remains the role of public authorities. It’s not easy since they don’t have control over everything either. But most of what is asked of them is, in addition to supporting the weakest players, to accompany change. Helping change means avoiding non-targeted measures as much as possible (such as distributing fuel oil vouchers everywhere) but pushing all actors to change their behavior and therefore, for example, to promote circularity in the construction sector, the recycling of materials, or to encourage households and companies to invest in these technologies which should make us more resilient, less voracious in raw materials and more sustainable. Helping change also means removing local obstacles as much as possible. We have to overhaul certain mechanisms. And the first is automatic wage indexation. The debate absolutely must take place. This is not to deny the need to adjust wages to prices, especially for the most modest incomes. It is rather a question of realizing the environment in which Belgium finds itself. Because with automatic indexation, our wages are changing faster than those of our neighbors who only adapt to inflation one or two years later. The resulting competitiveness handicap compared to our immediate neighbors would be around 4% at the end of this year. In one or two years, you can lose a lot of market share. Adding an extra hurdle to all that businesses already have to avoid today, we honestly can’t afford. Yes, we will have to put automatic wage indexation on the table…

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