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ECONOMY

German producer prices up from last year

German producer prices gained 7.8 percent in October from the same month a year earlier but were unchanged from September, data released on Thursday by the national statistics office showed.

Analysts polled by Dow Jones Newswires had forecast a drop of 0.7 percent on the month along with a more modest annualised increase of 7.1 percent.

In September, wholesale prices in the biggest European economy had risen by 0.3 percent and by 8.3 percent respectively.

“As in past months, energy prices had the most influence on the annual rate in increase,” the Destatis statistics service said, with a gain of more than 22 percent on the year.

When the cost of energy was stripped out, the producer price index rose by 2.9 percent, Destatis said.

The cost of natural gas for home heating gained 21.6 percent in October, meaning that families were likely to feel the squeeze as they head into the German winter even though consumer price increases have begun to ease.

From September to October, such gas prices rose by 6.8 percent, while the cost of electricity gained 0.1 percent on the month and 4.8 percent on the year, Destatis said.

Retail inflation fell to 2.4 percent in October, Destatis reported on November 14, a sharp drop from the level in September of 2.9 percent.

The consumer price index has begun to ease rapidly in Germany and across the 15-nation eurozone, providing more leeway for the European Central Bank to cut interest rates in a bid to boost economies like Germany’s, which are now in recession.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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