Germany has averted a threatened postal strike after Deutsche Post DHL Group agreed to double-digit pay rises, which will compensate its workers for higher living costs but add to central bankers’ fears about persistently high inflation.

The two-year pay deal covering 160,000 employees was agreed in last-ditch negotiations after 86 per cent of Deutsche Post workers last week voted in favour of an indefinite strike.

It is the latest sign of German unions stepping up demands for higher wages in response to inflation that soared to a 40-year high of more than 10 per cent last year. Unions are planning strikes at several German airports on Monday and across public transport later this month to reinforce their demands for double-digit pay rises.

The potential for rapid wage growth to fuel further price increases, keeping inflation high through a so-called wage-price spiral, is one of the big worries of the European Central Bank, which is preparing to raise interest rates for the sixth time at its meeting on Thursday.

Carsten Brzeski, an economist at Dutch bank ING, said “double-digit wage rises will fuel core inflation”, referring to the rate of growth in prices excluding energy and food, which hit a record high in the eurozone in February. “It is the big driver behind making what started off as a supply-side inflation problem into a demand-side inflation problem,” he added.

ECB chief economist Philip Lane said last week that “the high levels of wage growth projected for 2023 and 2024 can be expected to make wages an increasingly dominant driver of underlying inflation in the euro area”. He added that “close inspection of the latest wage developments is a high priority”.

Recent wage negotiations in the eurozone led to pay rises of 4.4 per cent for workers last year and 4.8 per cent this year, according to the ECB’s experimental tracker of negotiated wage growth. Lane said this was higher than the level consistent with a return to its 2 per cent inflation target.

Under the pay deal announced by Deutsche Post at the weekend, it will give one-off payments totalling €3,000 to each employee tax-free between May of this year and March 2024, after which their monthly pay would rise by €340, which it said was an average increase of 11.5 per cent.

Thomas Ogilvie, head of human resources at Deutsche Post, said the deal “went beyond our financial pain threshold”, pointing out the company had “hardly any leeway for price increases” owing to regulation.

Average wages in Germany rose 3.5 per cent last year, leaving workers significantly worse off in real terms after inflation hit 9.2 per cent. The country’s central bank has forecast inflation would remain higher than 6 per cent this year.

Dirk Klasen, head of communications at Deutsche Post, said he could not remember such a big pay rise since he joined the company more than 20 years ago. The deal is much more generous than the previous one agreed over a year ago to give employees a 2 per cent pay rise, but it fell short of the Verdi union’s demand for a 15 per cent increase.

“This is a good result that could not have been achieved without the pressure and willingness of our members to go on strike,” said Verdi’s chief negotiator Andrea Kocsis.