A little spiral, maybe

20 Feb 2008 By Edward Hadas

Tougher times are supposed to push wages and prices down. But the German steel industry doesn t seem to have heard. It just agreed on a 5% pay rise. Neither has the oil market, which is once again flirting with $100 a barrel. No wonder US bond yields have jumped.

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In January, US consumer price inflation increased to 4.3% from 4.1% in December, while new housing starts fell to a 16 year low of 3% annualised increase. Chinese retail price inflation rose to 7.1%, the highest in 11 years, and inflation in the eurozone reached 3.2%, the fastest pace in 14 years.

Oil reached a record $100.10 a barrel on February 19. Vale and ThyssenKrupp increased iron ore prices by 65% for the next 14 months. Wheat prices are up 90% in the past six weeks.

IG Metall, Germany's largest labour union, negotiated a 5.2% annual pay raise for 85,000 steelworkers on February 20.

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