Germans’ buying mood brightened at the end of the year, but experts are curbing the euphoria for the coming months. Inflation is likely to rise slightly again – also because of the budget decisions.
The mood of consumers in Germany brightens slightly at the turn of the year. The barometer for the consumer climate in January rose by 2.5 points to minus 25.1 points, the highest level since August, as the GfK and the Nuremberg Institute for Market Decisions (NIM) announced. The approximately 2,000 respondents are somewhat more optimistic about their future financial situation and the economy. Their willingness to make larger purchases also increased.
Consumers want to buy more goods again
Economists surveyed by Reuters had only expected consumer sentiment to rise to minus 27.0 points. Improved income expectations provided momentum in the December survey. This sub-index climbed significantly by 9.8 to minus 6.9 points, the best value since July. One of the main reasons for the optimism lies in the expected increases in wages, salaries and pensions.
The barometer for the so-called propensity to buy even rose to its highest level since March 2022 – the beginning of the Ukraine war. Consumers were asked whether they currently consider it advisable to purchase durable consumer goods such as cars, electronic goods or furniture. However, the level is still low: before the pandemic, the consumer climate was around +10 points.
Overall, consumers are still very worried, said NIM expert Rolf Bürkl. It therefore remains to be seen whether this is the beginning of a sustainable recovery in consumer sentiment. “Geopolitical crises and wars, sharply rising food prices and discussions about the preparation of the national budget for 2024 continue to cause uncertainty,” said Bürkl. The prerequisite for a sustainable upswing is that inflation continues to decline.
Budget decisions drive inflation up
However, according to economists, inflation will initially rise at the beginning of the year. Because of the federal government’s decisions, including a higher CO2 price, a plastic levy and an increasing tax on airline tickets, the inflation rate in January is likely to be just under four percent, according to Commerzbank. In November it fell to 3.2 percent – the lowest level in around two and a half years.
Experts expect an increase to 3.7 percent as early as December, as the state had taken over the one-off monthly advance payments for gas and district heating a year earlier. “It was previously assumed that the inflation rate would fall again in January after this base effect disappeared,” said Commerzbank economist Ralph Solveen. But the expert estimates that the government’s new measures announced after the Federal Constitutional Court’s ruling on the debt brake alone could increase the inflation rate by around 0.7 percent.
A survey by the Munich Ifo Institute among thousands of companies also signals that consumers could be asked to pay more again at the beginning of 2024. In the coming months, more companies want to increase their prices. The barometer for their price expectations climbed to 19.7 points in December, from 18.1 points in November. “This means that the decline in inflation rates is likely to stall for the time being,” explained ifo economics chief Timo Wollmershäuser.