Europe's Wageflation Hangover

The recent season of strikes at big companies shows workers are determined to boost pay in 2023

European companies dealing with the worst energy crisis and inflation in four decades are bracing for a fresh shock: wage inflation and the increasing threat of worker actions. That ominous theme has emerged this earnings season, with most of Europe’s biggest companies—from Unilever and Nestlé to L’Oréal, Sodexo and Ahold Delhaize—warning that prices may have to rise further in 2023 amid tough wage negotiations in a tight labor market.

A season of strike action is already in full swing across Europe, as workers—suffering the biggest decline in real income in years—push for higher pay. Employees at TotalEnergies in France, pilots at Scandinavian airline SAS and staff at carmaker Stellantis in Italy have all gone on strike in recent months. The latest in a string of British rail worker strikes was canceled at the last minute on Nov. 4, but staff at Britain’s Royal Mail have strikes planned in November and December. On Nov. 7 workers at UK packaging maker DS Smith, which supplies multinationals including Amazon, voted to strike.

With productivity almost flat and a number of countries in the euro area, as well as Britain, entering recession, the wage demands could put additional pressure on companies’ bottom lines. Nestlé SA Chief Executive Officer Mark Schneider says worker pay is an important issue for the coming months. “We’re watching this very closely,” he told Bloomberg Television. “In most countries those negotiations for ’23 will unfold during the winter and in the first quarter.”