According to the Ifo Institute, inflation has now consumed the savings accumulated by Germans during the Corona period. “The savings cushions from the Corona period have now melted away in many households,” said Ifo economic chief Timo Wollmershäuser on the current analysis of the bank balance sheets. At the same time, consumer prices are likely to continue to rise sharply. “As a result, private consumption will unfortunately fail as the engine of the economy in Germany over the course of the year,” concluded Wollmershäuser.
Household deposits in banks in Germany surged between the second quarter of 2020 and the first quarter of 2021. The reason: Travel, visits to restaurants and other leisure activities were not possible or only possible to a limited extent due to the pandemic. As a result, a lot of money landed on the high edge. “If you take the average propensity to save in the five years before the outbreak of the Corona crisis as a basis, a good 70 billion euros more were parked in bank accounts than usual during this time,” said Wollmershäuser.
But these so-called excess deposits were almost completely eliminated by the end of the first quarter of 2022. And in the spring, this development continued at an almost unchanged pace. “The high inflation is likely to have been the main driver of this ‘dissaving’ by households,” says Wollmershäuser. While consumption increased sharply in the first few months of the year despite high inflation, “many leading indicators have been showing a clear setback since the middle of the year”.
German consumers are currently suffering from the highest inflation in decades because energy became significantly more expensive after the Russian invasion of Ukraine. In July, consumer prices were 7.5 percent higher than a year earlier, after the inflation rate had reached 7.9 percent in May, the highest level since the winter of 1973/1974. The fuel discount and nine-euro ticket are currently driving down inflation for consumers, but this state aid will expire at the end of the month. Experts are therefore anticipating higher inflation rates of around nine percent in the autumn.
The Savings Banks also believe that the majority of Germans are increasingly reaching their financial limits due to high inflation. “We expect that because of the significant price increase, up to 60 percent of German households will have to use their entire disposable income – or more – monthly for basic living expenses,” said Helmut Schleweis, President of the Savings Banks Association a few days ago world on Sunday. According to the Sparkasse wealth barometer, only 15 percent were unable to put money away a year ago.