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.
Viele Unternehmen wollen ihre Preise erhöhen – ifo #Preiserwartungen sind im Dezember nur geringfügig auf +44,6 Punkte gesunken. Die Entwicklung zieht sich durch alle Wirtschaftszweige. #ifoUmfrage https://t.co/GDznfDjOag pic.twitter.com/1bxWkxuNui
— ifo Institut (@ifo_Institut) January 19, 2022
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.