As Switzerland’s cost of living increases, the economics and education minister, Guy Parmelin has stated it is the unions’ responsibility to negotiate pay increases.

Parmelin added the government shouldn’t get involved in discussions between employers and unions, during an interview with the SonntagsBlick newspaper. Yet, the federal government, if required, could make amendments to welfare for Switzerland’s lower income households.

The minister stated: “Now the social partners have to negotiate wage increases. The state should not anticipate these talks between employers and trade unions. However, if necessary, the federal government can make corrections, for example, to supplementary benefits or other benefits for lower income households.”

According to a report by the Swiss Federation of Trade Unions, low wage earners are already feeling the impact. As it stands, the lowest paid 10% of workers are 60 francs worse off each month in real terms compared to 2016, the organisation stated.

Consumer prices to the end of May this year were 2.9% higher. The principal factors leading to the increasing costs are food and energy prices as the war in Ukraine has impacted oil and gas supplies, as well as certain foods including wheat and sunflower oil.

There are forecasts that energy prices will increase further as the European Union steps up sanctions on energy imports from Russia.

Up to now, inflation has been predominantly cost-push, where supply restrictions have driven up input prices. Wage rises could lead to a demand-pull element to inflation, says a Le News report.

An additional risk is built-in inflation. Should employees and unions predict inflation and inflation-busting wage hikes to become the norm, there is a risk of a wage-price situation where the increases create inflation, which continues to move higher.