(Bloomberg) — Central bankers trying to ensure that surging consumer prices don’t feed yet more inflation are doing what they can to keep their own houses in order.
(Bloomberg) — Central bankers trying to ensure that surging consumer prices don’t feed yet more inflation are doing what they can to keep their own houses in order.
For staff working for US Federal Reserve Chair Jerome Powell, his euro-zone counterpart Christine Lagarde and their global peers, annual pay adjustments can’t avoid the impact of a once-in-a-generation cost-of-living shock.
Even if they don’t like it, central-bank employees face the same hit as everyone else in the labor market at a time when their bosses want to contain rampant inflation in the economies they oversee by heading off excessive wage increases.
Some are grumbling. While there’s little evidence that strikes are imminent, walkouts at Brazil’s central bank last year and by some Bank of England workers in 2017 underscore how such organizations can struggle to contain discontent, not least at a time of global labor-union unrest.
Even so, governors face an acute political imperative to ensure wage discipline, particularly in instances when negotiations aren’t generalized across the public sector.
The bitter alternative if their employees get fully compensated for lost purchasing power is to invite criticism for hypocrisy — and to risk yet more inflation as others follow suit.
“Central banks must be first in line to prevent a wage-price spiral,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd. in Zurich and a former International Monetary Fund official. “They are institutions committed to price stability and everyone needs to realize that. They can send an important signal.”
In the euro zone, where inflation reached a peak of 10.6% last year — a record in the history of the single currency — European Central Bank staff received a 4% salary increase for 2023. That followed a 1.48% raise that had also failed to keep pace with price growth.
It’s a similar case at major national central banks in the euro area. At the Bank of France, a 4% raise awarded in July was the first increase in five years.
Germany’s Bundesbank — famously a temple of price stability — lifted pay for staff by 1.4% in April 2021 and then by 1.8% a year later. Public-sector salary talks that encompass the organization are currently ongoing, with union officials bidding for a 10.5% raise that is likely to transpire far lower, if past accords are any guide.
News that the BOE is also containing wage demands emerged just this week. A 3.5% raise and a one-off 1% salary top-up accepted by union officials for the next fiscal year is half inflation and less than the 5% agreed by the government for 5.5 million public-sector workers. Lowest-paid employees will see the biggest gains.
“We need to strike a balance between maintaining budgetary discipline with public funds, retaining critical skills, and addressing the cost of living pressures facing our staff,” a BOE spokesperson said in a statement.
While the Fed in Washington does not reveal details of actual staff salary awards, its 2023 pay scale published this month indicates a maximum increase of 5.1% in the lower and upper ranges of every salary grade aside from the most junior level. That compares with average US inflation of 8% in 2022.
Even in Japan, whose central bank wants stronger wage gains to take hold, Governor Haruhiko Kuroda is practicing restraint. He argues it’s difficult to raise salaries at the Bank of Japan before seeing private companies lift theirs.
Pay rose a mere 0.2% for staff in the fiscal year that ends in March. Pressure for a bigger raise is likely to mount after inflation there reached 4% in December.
Away from the Group of Seven industrialized countries, a squeeze on public-sector salaries is affecting other central banks too. In Brazil, staff went on a three-month walkout last year that ended unsuccessfully when a deadline passed for new wage increases to take effect.
While UK public-sector unions are agitating for more pay, the BOE itself appears to have headed off the threat of similar action for now. It is well aware of the dangers, having faced the first strike in 50 years in 2017 by staff working in areas from maintenance to security.
Dissatisfaction at the ECB might yet intensify. A staff representative, Carlos Bowles, said in December that “we’re not happy” with the raise on offer. Subsequently, a large survey of employees showed 69% said confidence in the central bank’s leadership had suffered either “a lot” or “somewhat.”
On past form though, any action may be restrained: the ECB’s first-ever strike in 2009 was a 90-minute affair. It featured a protest with workers blowing whistles, banging drums and waving placards criticizing then-President Jean-Claude Trichet.
While holding firm on pay, central banks can negotiate on other matters. Part of the agreement for BOE staff is a one-off benefits increase worth 1% of salary available in cash if desired. Officials also lifted the leave entitlement to 26 days plus public holidays, and to offer dental insurance.
At the top of the pay scale, governors may be far better paid than subordinates but they do face constraints of their own.
At the Fed, the chair’s salary is set according to level 1 of the U.S. government executive pay scale, which this year will rise by 4.1% to $235,600. However, because of a pay freeze for certain senior officials in place since 2014, Powell got no annual raise and his salary remains $203,500 for 2023.
Remuneration for ECB President Lagarde will rise by around 4% to about €445,000 ($486,000) because she gets the same percentage advance as her staff do.
BOE Governor Andrew Bailey — whose call last year for UK workers to hold off on big pay demands prompted a furious union backlash — said in November he won’t accept a raise even if it’s offered.
Japan is different again. Kuroda’s own compensation in the current fiscal year rose at twice the pace of staff to 35.2 million yen ($271,000). Even so, the increase only amounted to 0.4%.
–With assistance from Alexander Weber, Bastian Benrath, Reed Landberg, Alister Bull, William Horobin, Alessandra Migliaccio and Philip Aldrick.
(Updates paragraph 22 to clarify that the Fed chair’s pay has been subject to a freeze since 2014)
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