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MONEY

Germany will see further food price hikes, says minister

Agriculture Minister Cem Özdemir believes German customers haven't seen the last of the price hikes in supermarkets and is calling for new relief measures to support the poor.

Supermarket groceries
A basket of groceries sits on the conveyor belt at a supermarket in Leipzig. Photo: picture alliance/dpa | Hendrik Schmidt

Speaking to Tagesschau on Friday, Özdemir said he believed that food prices hadn’t yet peaked in the wake of the Ukraine war and escalating energy crisis.

While inflation in Germany is currently at a record 7.9 percent, the cost of food products is going up at a much faster rate than many other consumer goods. In May, the price of food was on average 11.1 percent higher than it was in May last year. 

As the cost of living becomes increasingly unmanageable for low-income households, Özdemir is calling for VAT on basic food items to be temporarily abolished. 

“I think that would be good,” he told Tagesschau, adding that he thought the measure would also contribute to healthy eating.

READ ALSO: German Agriculture Minister wants to scrap VAT on fresh food

The debate on cutting or abolishing VAT on food has been gaining ground in recent weeks, with an increasing number of organisations coming out in support of the move. 

The German Social Welfare Association (VdK), the Federation of German Consumer Organisations (vzbv) and the German Diabetes Association have argued that VAT on general food items should be slashed or abolished during the crisis.

But the Green Party politician was sceptical about the chances of success, telling Tagesspiegel that he doubted he could find a majority in the coalition government in favour of the move. 

Financial aid for farmers 

One of the reasons for the disproportion hikes in food prices is the increasing cost burdens faced by farmers for things like energy and fertilisers. 

To attempt to counteract this, the Bundestag has laid the groundwork for an €180 million aid package for agriculture business.

By the end of September, farmers and other agriculture businesses will each be able to claim €15,000 in state aid. One third of the money will be provided by the EU, the rest by the federal government

READ ALSO: Germans turn to food banks as cost of living crisis hits

The other major issue is the supply of grain from the Ukraine. 

Since Russia’s full-scale invasion began back in February, it has been impossible for ships to safely transport grain from the Black Sea ports to Europe and the rest of the world. This has had an impact on the price of products like pasta, bread and flour. 

The question of how one of the world’s largest grain exporters can continue to trade is a major theme of the Global Food Security conference, which is taking place in Berlin on Friday. 

Özdemir said that “lasting and efficient alternatives” were needed to ensure that grain exports could continue.  

German Agriculture Minister Cem Özdemir

Agriculture Minister Cem Özdemir speaks with his Ukrainian counterpart, Mykola
Solskyj, in Kyiv. Photo: picture alliance/dpa/BMEL/Photothek | Leon Kügeler

As long as Russia acts as a “permanent aggressor”, “Ukraine cannot rely on being able to transport its grain safely across the Black Sea, even in the event of peace”, the minister warned.

He suggested that a broad-gauge railway between the Ukraine and the Baltic Ports or trade routes along the Danube could be viable options.

For EU countries, Özdemir also suggested that rules around crop rotation could be waived this year, which would enable countries to repeatedly cultivate wheat.

According to calculations, this would allow “up to 3.4 million tonnes of additional wheat to be produced in Germany alone”, Özdemir said.

READ ALSO: When will Germany’s rising cost of living slow down?

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MONEY

‘€10-€15 more for groceries’: How price hikes are hitting consumers in Germany

Russia's war in Ukraine is driving up energy and food prices. While the German government mulls new measures to protect consumers, buyers are increasingly feeling the price hikes, reports Cecilia Filas.

'€10-€15 more for groceries': How price hikes are hitting consumers in Germany

Consumer prices are rising in Germany – and people are noticing it in their wallets. In May, inflation rose by nearly 8 percent year-on-year, the highest level since the country’s reunification in 1990. First, it was the pandemic and the resulting disruption of global supply chains that pushed up prices, now, it is Russia’s invasion of Ukraine that is driving energy and food prices to record high levels. 

Olaf Scholz’s coalition government launched a €30 billion plan to help German consumers, especially the most vulnerable. The measures included the €9 monthly ticket over summer; fuel tax cuts; energy subsidies; and a one-off €300 payout for all taxpayers, plus a €100 ‘Kinderbonus’ for children.

But while the measures provided temporary relief – in June inflation fell to 7.6 percent – experts fear another surge is around the corner. The numbers could get significantly worse in the coming months when some of the measures end and Germany will face the winter with a reduced amount of Russian gas – or none at all. 

READ ALSO: Who gets Germany’s €300 payout – and when?

Thinking carefully about bigger purchases

People living in Germany are feeling the pinch.

At the supermarket, a shopping bill that used to be between €70-€80 is “now €10 or €15 extra,” says Nicolás, an Argentine expat in his 30s who lives in Berlin.

Unlike in Argentina, where consumers are used to offers and different forms of financing to cover themselves against inflation, Nicolás says he has no strategy and has not reduced his consumption because of the rising prices, although it is impacting him. “You don’t need to pay in instalments (for items), but you do feel the difference. You save less,” he says.

Federico, another Argentina native who has been living in Germany for more than 10 years, agrees.

“It’s not that you have problems making ends meet, but that you save a little less,” he says. “Or if you have to make a big purchase, you might think about it a little bit more.”

He says everyday food products in Berlin have also noticeably gone up. 

“The most classic thing – to buy a kebab which is something everyone eats – you can see how much it has increased,” he adds.

“There is a lot of advertising on TV and radio showing you ways to save, and years ago there was no advertising or products with so many promos. Now, this has become more visible, as there is a much greater variety of bargains and people tend to go after that a little bit more than they used to.”

Fruit and veg being sold at a market in Oldenburg.

Fruit and veg being sold at a market in Oldenburg. Photo: picture alliance/dpa | Hauke-Christian Dittrich

‘Price shocks’

Chancellor Scholz has promised more measures in the coming months to cushion the burden, especially on lower-income families. The Chancellor plans to meet with employers, trade unions and the Bundesbank team in September.

Bundesbank President, Joachim Nagel, said recently that there is a risk of inflation remaining high in the medium term, and the German central bank is forecasting an average rate above 7 percent for 2022.

“For this year, we think that we can really manage the inflation headwinds we see on the energy side but also on the salary side,” Bettina Orlopp, CFO of Commerzbank told Bloomberg TV.  “Next years – 2023, 2024 – the story will be different, becoming more difficult”, she said.

But is Germany really experiencing an inflationary process? Dr. Silke Tober of the Hans Boeckler Foundation’s Macroeconomic Policy Institute (IMK) doesn’t think so.

“The inflation we are experiencing in Germany at the moment, and in the euro area as a whole, is not inflation in the real sense. What we have are price shocks”, she tells The Local. “What really makes an inflationary process is that wages and prices rise, and then you get persistent inflation.

“We are not at that stage. What we are really seeing instead is that the energy price hikes and the increase in food prices are pushing up prices.”

READ ALSO: When will Germany’s rising cost of living slow down?

Tober adds that there are assistance measures which make a difference.

“The government has put in place several transfer payments to households, especially low-income households, and other measures that reduce the burden of inflation,” Tober says.

She expects price rises to come down “substantially” next year, provided the war in Ukraine does not escalate.

However, Tober says: “If we have a gas embargo and no more gas from Russia, we will have another jump in energy prices, and then inflation will stay high next year as well. And then we have the problem that there may be second-round effects, meaning wage increases might be excessive and then will have persistent inflation.”

The expert from IMK says that rising prices are especially affecting lower-income households, who must “cut back on other expenses to pay for food and energy” because they tend to have fewer savings to fall back on.  

“Households with higher incomes tend to have wealth and a high savings rate, so they cope with it by reducing their savings rate or maybe even reducing their savings,” Tober says.

“But low-income households usually, in Germany at least, they don’t have a positive savings rate – that means they’ve already spent all of their money or most of it – and have very little wealth, so what they have to do is actually reduce consumption to deal with the current [price] shocks.”

READ ALSO: What is Germany’s new gas ‘tax’ and who will pay it?

Money lies on a radiator.

Money lies on a radiator. People with gas heating will face much higher costs. Photo: picture alliance/dpa | Patrick Pleul

Ongoing concerns about price hikes

Indeed, June retail sales plunged 8.8 percent year-on-year, the biggest drop since 1994, according to Destatis. Non-essential items such as furniture, household appliances, clothing and shoes were the hardest hit.

On the other hand, to avoid passing on cost increases to customers and remain competitive, several companies are maintaining prices (or raising them at a very low rate) but reducing the content of their products, warned Verbrauchenzentrale Hamburg, a consumer advice centre. These are hidden price increases, generally referred to as ‘shrinkflation’.

With an interest rate of just 0.5 percent, credit or financing purchases in instalments might seem an attractive option to protect from inflation.  However, Verbrauchenzentrale Nordrhein Westfalen, the consumer protection association in the state of North Rhine-Westphalia, says that there hasn’t been, at the moment at least, “increasing demand in our debt counselling service as a result of the current inflation, although we notice ongoing concerns about the price increases”.

“Normally excessive debts and consumer insolvency are not seen immediately but with a time gap -they follow a crisis,” the agency told The Local. “Therefore, it is just possible that in the end, we will see more consumer insolvencies due to these general price increases.”

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