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MONEY

How the cost of living crisis is changing German spending habits

More than half of Germans are worried about keeping their standard of living in view of sharp price increases, a new survey has found.

A shop worker taking money from a till.
Germans are changing their spending habits as inflation rises. Photo: picture alliance/dpa | Marijan Murat

Russia’s war on Ukraine, as well as the effects of the Covid pandemic on supply chains, has changed the spending habits of Germans.

Energy costs have shot up since Russia invaded Ukraine in February, having a knock-on effect on consumer prices – which were already high due to the pandemic.

And it is having a big impact on people in Germany. Many people have signalled they are cutting back on buying over price-hike fears. 

According to the survey by the Institute for Trade Research in Cologne, more than half of people living in Germany (54 percent) are afraid that they will soon no longer be able to maintain their standard of living because of the developments.

About two-thirds of respondents said they would cut back on their spending because of inflation.

In order to save more cash, consumers in Germany say they want to try and find special offers in shops and supermarkets, and compare prices more closely. 

Almost 40 percent of respondents said they had postponed some purchases since the start of the Ukraine war.

This mainly concerned larger investments in the area of housing and furnishings. But according to the survey, many people are also holding back on buying products in fashion and electronics. One in two people also want to cut back on holidays and travel. 

Meanwhile, four out of five respondents of the survey believe that the current increase in the prices of many products is only the beginning. Unfortunately, they could be right. 

Inflation climbed to a record high in Germany of 7.4 percent in April – up from 7.3 percent in March, according to the federal statistics agency Destatis.

Carsten Brzeski, head of macro at the ING bank, said that German inflation would likely “accelerate further in the coming months” as the war in Ukraine continues. 

READ ALSO: Germany slashes growth forecast amid Ukraine war

Second-hand sector gets boost

Many people in Germany are turning to second-hand products as a way of saving money and being more sustainable. 

“Second-hand shopping has become socially acceptable,” said Kai Hudetz, Managing Director of the Institute for Retail Research (IFH). “Nobody is ashamed of it anymore – no matter how fat their wallet.”

Hudetz said three developments are currently giving the second-hand trade a boost: price increases, the worldwide supply problems and the desire to live more sustainably.

“I can save money by buying second-hand products in times of high inflation,” he said. “I thus avoid the delivery bottlenecks caused by the worldwide logistics problems, because the products are immediately available. And I act in a sustainable way, because reusing them is much more environmentally friendly than buying new ones.”

Trade expert York von Massenbach from consultancy firm Atreus has also noticed this trend.

“The current price increases and supply bottlenecks are boosting the second-hand business as a whole,” he said.

The biggest impact, he said, is on electronic products such as laptops and smartphones.

READ ALSO: How to master second-hand shopping like a German

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ENERGY

Should tenants in Germany be shielded from energy price hikes?

Gas prices have more than tripled in the past year, prompting tenants' rights advocates to call for more social support and a cap on energy costs.

Should tenants in Germany be shielded from energy price hikes?

The German’s Tenants’ Association is calling on the government to put together a new energy relief package to help renters deal with spiralling energy costs.

Gas has become an increasing scarce resource in Germany, with the Economics Ministry raising the alert level recently after Russia docked supplies by 60 percent.

The continued supply issues have caused prices to skyrocket. According to the German import prices published on Thursday, natural gas was three times as expensive in May 2022 as it was in May a year ago.

In light of the exploding prices, the German Tenants’ Association is putting the government under pressure to offer greater relief for renters.

READ ALSO: 

Proposals on the table include a moratorium on terminating tenancy agreements and a permanent heating cost subsidy for all low-income households.

The Tenants’ Association has argued that nobody should face eviction for being unable to cope with soaring bills and is urging the government to adjust housing benefits in line with the higher prices. 

Gas price cap

Renters’ advocates have also joined a chorus of people advocating for a cap on consumer gas prices to prevent costs from rising indefinitely.

Recently, Frank Bsirske, a member of the parliamentary Green Party and former head of the trade union Verdi, spoke out in favour of capping prices. Bavaria’s economics minister and Lower Saxony’s energy minister have also advocated for a gas price cap in the past. 

According to the tenants’ association, the vast majority of tenants use gas for heating and are directly affected by recent price increases.

At the G7 summit in Bavaria this week, leaders of the developed nations discussed plans for a coordinated cut in oil prices to prevent Russia from reaping the rewards of the energy crisis. 

In an initiative spearheaded by the US, the group of rich nations agreed to task ministers will developing a proposal that would see consumer countries refusing to pay more than a set price for oil imports from Russia.

READ ALSO: Germany and G7 to ‘develop a price cap’ on Russian oil

A gas price cap would likely be carried out on a more national level, with the government regulating how much of their costs energy companies can pass onto consumers. 

Strict contract laws preventing sudden price hikes mean that tenants in Germany are unlikely to feel the full force of the rising gas prices this year

However, the Tenant’s Association pointed out that, if there is a significant reduction in gas imports, the Federal Network Agency could activate an emergency clause known as the price adjustment clause.

This would allow gas suppliers to pass on higher prices to their customers at short notice. 

The Tenants’ Association has warned that the consequences of an immediate market price adjustment, if it happens, should be legally regulated and socially cushioned.

In the case of the price adjustment clause being activated, the government would have to regulate the costs that companies were allowed to pass onto consumers to prevent social upheaval. 

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