According to a study, the inflation perceived by consumers in Germany is three times as high as the inflation rate actually determined. What are the reasons for the discrepancy?
According to a study by the credit insurer Allianz Trade, the inflation rate perceived by people in Germany was 18 percent in May. It was almost three times as high as the officially calculated inflation of 6.1 percent.
In general, inflation is perceived to be higher than measured inflation, according to the analysis. However, the current inflation dynamic has widened the gap between perceived and actual inflation.
influence on purchasing behavior
“There is a wide gap between perceived and actual inflation, particularly in Germany,” says Jasmin Gröschl, Senior Economist at Allianz Trade. In the euro zone as a whole, the two values differ by around nine percentage points, in Germany by around eleven.
“That is not insignificant, because the perceived inflation has a strong influence on the actions of consumers, for example in their purchasing behavior,” says Gröschl. “So this discrepancy plays an important role for the economy and companies as well as for interest rate policy.”
Daily purchases shape perception
The experts also investigated the reasons for this high discrepancy, which is related to the composition of the shopping basket and the actual purchasing behavior of consumers. Accordingly, consumers pay more attention to price changes for frequent purchases, such as food and beverages, fuel or other supermarket items. “If these prices rise above average there, people tend to feel that inflation is much higher,” it said.
In May, for example, food prices in Germany rose by 14.9 percent compared to the previous year. Food prices are currently by far the strongest price drivers among the goods sectors, as reported by the Federal Statistical Office.
psychological aspects
But psychological aspects, demographic and regional differences as well as individual consumer behavior could also lead to consumers assessing the price increase differently than the official measurement. As the Allianz experts note, people tend to focus on particularly significant cases of price increases in their perception. Conversely, stable or falling prices tend not to be noticed, according to the assessment. This creates a distorted picture and a strong discrepancy between perceived and actual inflation.
In addition, inflation rates can vary depending on the region, city or even district. Official measurements are based on national or regional averages, which may not accurately reflect the situation on the ground, the authors write.
EU inflation rates diverge
Within Europe, official inflation rates have recently diverged widely. In May, the range reportedly ranged from 2.8 percent in Greece to 21.5 percent in Hungary. In neighboring Austria, inflation was 8.8 percent, higher than in Germany (6.1 percent) and Switzerland (2.2 percent).
“Key factors in inflation are geographical proximity to Russia, dependence on energy and food imports, government intervention to lower individual prices and the strength of the respective currency,” said Gröschl.
In Germany, therefore, all factors that influence the inflation rate come into play: The high dependency on energy imports from Russia has caused energy bills to rise sharply. The federal government counteracted this with the electricity and gas price brake. In the euro zone as a whole, a weak euro has increased inflation because commodities traded in dollars, such as oil and gas, have become more expensive.