consumer
Inflation, inflation, inflation: where are prices going?
A customer pushes a shopping cart filled to the brim across a supermarket parking lot. Photo: Matthias Balk/dpa
© dpa-infocom GmbH
Life in Germany has become noticeably more expensive. An end to the price increases is not in sight for the time being. Politicians and the central bank are trying to counteract this.
Six percent? Seven percent? Germany’s consumers are concerned about inflation trends.
The war in Ukraine is further heating up energy prices, which were already the main drivers of inflation. Today, the Federal Statistical Office is publishing its first estimate of the development of the inflation rate in Germany in March.
How much have consumer prices recently risen?
Hopes of falling inflation rates after the turn of the year were only fulfilled for a short time. After falling to 4.9 percent in January, inflation in Germany climbed back above the five percent mark in February 2022: consumer prices were 5.1 percent higher than in the same month last year. Heating oil (plus 52.6 percent), natural gas (plus 35.7 percent) and fuel (plus 25.8 percent) became significantly more expensive. Not only the tense situation on the world market drove up the prices, but also the German CO2 tax: Since the beginning of the year, 30 euros per tonne of carbon dioxide produced by the combustion of diesel, petrol, heating oil and natural gas have been due.
What are the future prospects?
According to economists, consumers in Germany must be prepared for further price increases. In February, producer prices for industrial products were 25.9 percent above the level of the same month last year. Many products could therefore become even more expensive for consumers because companies react to higher purchase prices, for example for raw materials, with a price premium.
“Due to the surge in energy prices due to the war, consumer price increases are likely to increase noticeably again, especially in the short term,” said Bundesbank President Joachim Nagel recently. The BdB banking association expects inflation rates of more than seven percent in the coming months. “For the next few years, we expect significantly increasing prices,” said BdB general manager Christian Ossig. The Ifo Institute is forecasting an inflation rate of up to 6.1 percent for 2022 as a whole. That would be the highest inflation in Germany since reunification in 1990.
What does this mean for consumers?
Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro. Above all, when goods that are bought frequently become more expensive, people notice this in their wallets: when filling up with gas, in the supermarket. In addition, in the years 2020 and 2021, which were shaped by the corona pandemic, Germany’s employees had to accept real wage losses.
Last year, the strong increase in gross wages of almost 3.1 percent was more than completely eaten up by consumer prices, which rose by a good 3.1 percent. No real wage gains are to be expected for the current year either, due to the even greater rise in inflation.
What is the state doing to relieve consumers?
The federal government put together another package last week to relieve people in the face of the sharp rise in energy and fuel prices. This includes, among other things, a three-month reduction in energy tax, which is intended to make a liter of petrol 30 cents and diesel 14 cents cheaper.
In addition, employees receive a one-time energy subsidy of 300 euros on their gross salary and families receive a 100 euro bonus per child on the child allowance. According to estimates by the Federal Ministry of Finance, the total costs for the state will approach the 16 billion euros that the first relief package from February included.
Is inflation only so high in Germany?
In the euro zone as a whole, energy prices in particular are driving inflation. In February, at 5.9 percent, it reached the highest level in the currency area since the euro was introduced as a settlement currency in 1999.
In the United States, consumer prices rose nearly 8 percent year-on-year in February, the highest there in 40 years. Britain is experiencing the steepest rise in consumer prices since 1992.
Has the European Central Bank reacted?
In view of persistently high inflation, the ECB is speeding up the normalization of its ultra-loose monetary policy for years. Europe’s currency watchdogs are expecting an inflation rate of 5.1 percent for the euro area in the current year. The central bank is aiming for stable prices with two percent annual inflation. Critics have long accused the ECB of fueling inflation with its flood of cheap money.
On March 10, the ECB decided to scale back the purchase of additional government and corporate bonds until mid-2022. “If the net purchases end in the third quarter as currently planned, that opens up the possibility of raising key interest rates this year if necessary,” said Bundesbank President Nagel a few days after the decision by the ECB Council, of which he is a member.
The currency watchdogs are making sure that there is no dangerous wage-price spiral. If wages rise too much in response to the current high level of inflation, this could push prices even higher as companies use higher wages as a justification for further price hikes. Wages and prices then push each other up, and inflation could remain at a high level for a long time. So far, however, the ECB sees no signs of such a development.