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ECONOMY

German cost of living rises to 28-year-high

German consumer prices rose at their fastest pace since 1993 in October on the back of higher energy prices, official data showed Thursday.

Vegetables at a supermarket in Berlin.
Vegetables at a supermarket in Berlin. The annual inflation rate has risen by 4.5 percent in Germany. Photo: picture alliance/dpa | Fabian Sommer

The annual inflation rate accelerated for the fourth month in a row, reaching 4.5 percent in October, with energy prices soaring by 18.6 percent, according to first estimates from the federal statistics agency Destatis.

In September, prices had risen in Europe’s biggest economy by 4.1 percent year on year.

As The Local has been reporting, residents in Germany are seeing the increase in the rising price of many everyday foods – such as fruit and vegetables – and in the higher costs of petrol, electricity and gas bills. 

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Why is inflation rising?

“There are a number of reasons for the high inflation rates since July 2021,” the agency said in a statement, citing a temporary reduction in VAT in 2020 and the introduction of CO2 pricing since January 2021.

It also blamed “significant price increases at the upstream economic levels”.

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

Official estimates published Wednesday showed the German government expects inflation to rise to three percent in 2021 before subsiding over the next years.

The forecast increase in 2021 overall 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.

Supply chain disruptions

The German government introduced a 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.

Jens-Oliver Niklasch, a senior economist at LBBW bank, said this was responsible for “a considerable part” of the price surge.

However, he added: “Does that mean we can sit back and relax? Unfortunately, no.

“The strong increases in import and producer prices lead us to expect that inflation will remain higher next year than in the years before the pandemic.”

Rising inflation is just one of a slew of worrying indicators for the German economy in recent months.

Supply chain disruptions and shortages of raw materials, including plastics, metals and paper, have choked off the recovery from the impact of the coronavirus pandemic.

However, there was also good news on Thursday, with official figures showing the unemployment rate fell in October after holding steady in September.

The seasonally adjusted unemployment rate was 5.4 percent in October, according to the BA federal labour agency, with the number of unemployed people falling by 39,000.

“The effects of the coronavirus pandemic are still palpable, but are weaker,” BA head Detlef Scheele said in a statement.

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MONEY

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.

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