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MONEY

Consumers in Germany face widespread price hikes this year

Consumers in Germany are already feeling the squeeze as the cost of living continues to rise - but according to a recent survey from Munich's ifo Institute, more price hikes are on the horizon.

A shopper packs groceries at the supermarket
A shopper loads groceries into a supermarket trolley. Photo: picture alliance/dpa/Ben Pakalski / www.pakalski.de | Ben Pakalski

In December, the ifo’s price expectations index fell just slightly to 44.6 points, down from an all-time high of 44.9 in November.

The figures were based on a survey companies’ forecasts for the next three months, with high values on the index meaning that firms are expecting their costs to go up significantly. 

“Such increases will filter down to consumer prices,” confirmed Timo Wollmershäuser, Head of ifo Economic Forecasts.

As companies grapples with the high cost of energy and other products, these additional overheads are likely to be reflected in higher prices for customers in the next three months, he added. 

According to the ifo, expectations for significant price rises are currently running through all sectors of the German economy.

In retail, price expectations are at 60 points on the index, suggesting that consumers are set to see significant price increases at the shops in the coming months. 

This was closely followed by wholesale businesses with 57 points and industry with 55.

The lowest value, 34 points, applied to service providers – though even this number represented a new record value for the sector. 

High inflation set to continue

The news comes after months of rapidly rising consumer prices in Germany. 

According to the most recent figures, the prices of everyday goods went up by an average of 3.1 percent last year amid supply bottlenecks and soaring energy costs.

This marks the highest yearly average for three decades.

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In the coming months, the inflation rate could rise above the four percent mark and only gradually approach the two percent mark towards the end of 2022, Wollmershäuser said.

“Inflation will decline over the course of this year, but slowly,” he warned. “We now expect a rate of inflation of three and a half percent for the year as a whole.”

Higher inflation weakens the purchasing power of consumers because euros are worth much less than before.

It also devalues people’s savings as interest rates continue to be dwarfed by the rising cost of living. 

According to a YouGov survey commissioned by Postbank, one in nine Germans is struggling to afford everyday expenses like groceries and utilities due to the sharp rise in the cost of living. 

“Since food, energy and fuel have become considerably more expensive, but incomes cannot keep up with the price development, people have much less financial leeway than before,” explained Postbank Chief Economist Marco Bargel.

‘Peak has passed’

Though economists remain concerned about the prospect of rising prices over the coming months, shoppers are unlikely to see the same level of price hikes that they faced in the last months of 2021. 

According to the Federal Office of Statistics, consumer prices rose by 5.3 percent in December compared to the same month in 2020, marking the largest jump in consumer prices throughout the year.

“This means that the peak of German inflation has probably now been passed,” said Sebastian Dullien, scientific director of the Macroeconomic Policy Institute, told DPA.

Compared to November, prices went up by 0.5 percent in the run-up to Christmas. 

READ ALSO: How will the cost of living change in Germany in 2022? 

Member comments

  1. Yupp inflation is a tax on the poor, and with the Greens in charge the clean energy plan will built on the backs of the working poor!

    1. With the situation with Russia and Nord Stream 2, it would be slightly poetic if we ended up having to beg other European nations for some of their nuclear power.

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UKRAINE

Russian gas stop will spark ‘food price hikes and supply issues’ in Germany

Germany could see its supplies of vegetables and other food products affected in the event that Russia turns off the gas taps - but the overall supply will remain secure, the Agriculture Minister has said.

Russian gas stop will spark 'food price hikes and supply issues' in Germany

Cem Özdemir made the comments in a response to a parliamentary question by the CDU/CSU on whether the country was prepared for a sudden halt in gas deliveries from Russia.

“Many companies in the agricultural and food industry are absolutely dependent on the supply of gas in order to be able to produce food or animal feed,” according to the statement by Özdemir, which was obtained by the Rheinische Post newspaper.

“In the event of a halt in natural gas supplies from Russia, further price increases as well as bottlenecks in the supply of individual foodstuffs are to be expected.”

According to Özdemir, gas supply issues would mainly affect crops of vegetables, which could include things like aubergines, cucumbers and peppers. The supply of house and balcony plants grown in greenhouses could also be affected. 

However, there could also be an impact on other agricultural businesses such as dairy and meat farms, as well as mills and bakeries.

Overall food supply ‘secure’ 

In recent months, supermarkets in Germany have been regularly hiking up their prices as they complain of increased costs.

So far, the price rises have mainly been noticeable in the meat and dairy aisles, with sausages, butter and sour cream all among the products affected. 

However, panic-buying also led supermarkets to run low on products such as cooking oils and flour as people speculated about disrupted supplies in the early weeks of the Ukraine war.

Russia and Ukraine are both major exporters of wheat, while Ukraine is a major supplier of sunflower oil.

Food suppliers and politicians have repeatedly urged consumers to avoid stockpiling items they think could run low as they play down fears of potential shortages. 

Food fair Cem Özdemir

Agriculture Minister Cem Özdemir (Greens) speaks at the opening of a food fair on April 26th, 2022. Photo: picture alliance/dpa | Marius Becker

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At present, the Ministry for Agriculture doesn’t believe that potential bottlenecks are likely to affect the country’s overall food supply. 

“The supply of food in Germany continues to be secure,” the statement from the ministry said. 

The government currently assumes that the total supply of gas “can be physically ensured until the end of summer or the beginning of autumn 2022 in the event of a sudden and prolonged stoppage of all Russian gas imports”.

If the supply of vegetables and ornamental plants is affected, this could be compensated for with supplies from other EU countries, the ministry said.

However, consumers may have to contend with further price rises in the supermarket. 

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