Few parts of the eurozone’s economy are as strong right now as German manufacturing. According to the purchasing managers’ indices, here’s how the sector is doing relative to the eurozone economy as a whole (recall that 50 is the crucial level at which the PMIs distinguish between a decline in activity from an expansion):

Line chart of Factories in eurozone

Boom!

So if we were going to see wages shoot up anywhere in the eurozone, it’d be here right? Wrong. Almost 4m German manufacturing workers are represented by a single union, IG Metall. But the union has been locked in a dispute since December after companies tabled a pay rise of zero per cent. Via J.P. Morgan’s Greg Fuzesi:

The union is, of course, expected to hold out for more than a big fat zero and has threatened to up strike action (there have already been a series of one-day walkouts). Here’s what IG Metall’s boss Jörg Hofmann had to say in this Sunday’s Bild am Sonntag (Factiva’s translation):

The assumption is unions and companies will meet in the middle at 2 per cent, which – conveniently for the ECB – is its inflation target. However, with most parts of the economy in far worse shape than German manufacturing, it’s still not great.

There are some mitigating factors here.

While German manufacturers are the region’s star performers, they have seen costs shoot up on the back of supply shortages, higher freight charges, and soaring commodity prices. Many don’t think they’ll be able to pass them on to customers, according to an IHS Markit poll of German business confidence published earlier this week: (our emphasis)

They might be able to raise prices if everyone else’s wages went up too, but that’s another discussion.

Meanwhile carmakers, which employ a big chunk of the IG Metall membership, have been hit by a global chip shortage that has brought production to a halt in plants the world over (which Hoffmann acknowledged to BaS).

There’s also a long-running trend of German companies doling out below-productivity pay rises – boosting their global competitiveness but leaving their workers out of pocket.

Still, IG Metall is a massive union and in the past its wage bargaining has proven a decent bellwether of where eurozone pay is heading.

So much for that inflationary spiral.