Germany expects consumer price rises to peak this year

Germany's government expects inflation - the price of everyday consumer goods - to rise to three percent in 2021 before subsiding over the next years, official estimates published on Wednesday showed.

A supermarket trolley full of groceries
A supermarket trolley full of groceries. The prices of everyday items have gone up considerably in Germany in recent months. Photo: picture alliance/dpa | Fabian Sommer

“Bottlenecks and recent sharp rises in global energy prices” have pushed the rate of inflation up, the economy ministry said in a statement.

The forecast increase in 2021 would be the highest since 1993, when inflation was 4.5 percent.

Inflation would subsequently fall to 2.2 percent in 2022 and 1.7 percent in 2023, the German government predicted.

The rate of inflation would “already reach a significantly lower level by the turn of the year”, as one-off effects driving inflation, such as a temporary reduction in German VAT, would no longer factor into the calculation, the economy ministry said.

The government introduced the temporary VAT reduction in 2020 to mitigate the impact of Covid-19 lockdowns on the economy, lowering the base against which current price rises are measured.

Other inflation drivers would also begin to “lift”, German Economy Minister Peter Altmaier said in a press conference, while the government expects energy prices to “consolidate and partially sink”.

Gas prices have surged in Europe in recent months as demand has soared with economies emerging from their Covid-induced restrictions.

“We hope that this development in energy prices has reached a ceiling,” Altmaier said.

READ ALSO: Where German drivers are going to find cheaper fuel prices

In September, prices rose in Germany by 4.1 percent year on year, according to the federal statistics agency Destatis.

The economy ministry on Wednesday revised down its estimate for growth in 2021 to 2.6 percent from its previous estimate of 3.5 percent, made in April.

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Where in Germany do people have the highest disposable income?

An economic study has shown huge regional differences in income throughout Germany. So which parts of the country have the most to spend each month, and which are feeling the squeeze?

Where in Germany do people have the highest disposable income?

A study by the Economic and Social Sciences Institute (WSI) of the Hans-Böckler foundation reveals stark regional differences in disposable income in Germany. In some cases, households had as much as double the spending money of those in other parts of the country. 

Here’s where people have the most – and least – disposable income each month.

What is disposable income?

The WSI calculated disposable income as the sum of income from wealth and employment, minus social contributions, income taxes, property taxes and other direct benefits or taxes.

What’s left is the income which private households can either spend on consumer goods or save.

The study, which was based on the most recent available national accounts data for 2019, looked at the disposable income of all of the 401 counties, districts and cities across Germany.

Which regions have the highest and lowest disposable incomes?

The study found that the regions with the highest disposable incomes were in the southern states.

Heilbronn in Baden-Württemberg had the highest disposable income of all 401 German counties and independent cities – with an average per capita disposable income of €42,275. The district of Starnberg in Bayern followed in second place with €38,509.

READ ALSO: REVEALED: How much do employees really earn across Germany’s states?

By comparison, per capita incomes in the cities of Gelsenkirchen and Duisburg in North Rhine-Westphalia were less than half as high, at €17,015 and €17,741 respectively. These regions had the lowest disposable income in the country. 

The study also found that, more than thirty years since German reunification, the eastern regions continue to lag behind those in the west in terms of wages.

According to the WSI, the Potsdam-Mittelmark district is the only district in the former east where the disposable per capita income of €24,127 exceeds the national average of €23,706.

Do regional price differences balance things out?

The study also showed that regionally different price levels contribute to a certain levelling out of disposable incomes, as regions with high incomes also tend to have higher rents and other living costs.

“People then have more money in their wallets, but they cannot afford more to the same extent,” WSI scientist Toralf Pusch explained.

READ ALSO: EXPLAINED: When will Germany raise the minimum wage?

Therefore, incomes in the eastern states, adjusted for purchasing power, are generally somewhat higher than the per capita amounts would suggest.

That could explain why, even after price adjustment, the cities of Gelsenkirchen and Duisburg in western Germany continue to be at the very bottom of the list.

Saxon-Anhalt’s Halle an der Saale, on the other hand, which has an average disposable income of only €18,527, benefits from the lower prices in the east.