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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.

A woman holds cash in her hand.
A woman holds cash in her hand. Photo: picture alliance/dpa | Daniel Karmann

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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UKRAINE

Reader question: Can Ukrainians get dual nationality in Germany?

Most non-EU citizens who want to become naturalised German citizens have to give up their existing passport first. Do the same rules apply to Ukrainians?

Reader question: Can Ukrainians get dual nationality in Germany?

Before Russia’s invasion of Ukraine, people with Ukrainian citizenship were treated much like most other third-country nationals: according to Germany’s strict rules on dual nationality, the vast majority were asked to give up their existing passport before naturalising as a German.

However, the outbreak of war on Ukrainian soil has complicated matters significantly. 

Firstly, the majority of Ukrainians who have come to Germany over the past year have arrived as refugees. At the latest count, almost a million refugees had travelled to Germany from Ukraine in 2022 – though some of these may now have returned home.

German immigration law specifies a number of exceptions to the dual nationality ban. One of these stipulates that asylum seekers can keep their existing nationality if they choose to naturalise in Germany. That means that Ukrainian refugees would automatically qualify for dual nationality – as long as they meet other requirements for citizenship, such as at least six years of continued residency and B1 German language skills.

READ ALSO: German citizenship: Can people who apply before the law changes get dual nationality?

Most recently, however, the Interior Ministry passed a further significant change to the law. On September 6th, the ministry agreed to waive the requirement to give up previous nationalities for Ukrainian citizens applying for a German passport. This change applies to all Ukrainians who fit the requirements for citizenship – not just refugees.

The reasoning behind the change is that the government assumes that, given the current conflict, it’s likely to be impossible for Ukrainians to give up their citizenship.

Understandably at a time of war, numerous aspects of everyday bureaucracy have been put on hold in Ukraine. That means that applications to renounce Ukrainian citizenships are currently not being processed at all.

In situations like these, where an application to give up a previous citizenship is not likely to be granted – or is likely to be refused – Germany has another exception in place. In such cases, citizenship offices are required to allow the applicant to become a naturalised German without requiring them to dispense with their previous nationality. 

When is the best time to apply?

According to the Interior Ministry, the relaxed rules for Ukrainians will only apply as long as the conflict continues. That means that, if the situation stabilises and authorities begin processing applications to renounce citizenship again, Germany may well decide to tighten up its rules once more.

That means that it could be advisable for Ukrainians who are eligible to apply for German citizenship to submit their application as soon as possible.

However, it’s also worth mentioning that the government is currently planning to relax the dual nationality rules across the board.

Though it’s unclear when this will take place, it is believed to be a priority project for the SPD-led Interior Ministry, which could mean that citizenship rules are liberalised within a matter of months.

That would mean that everyone could be entitled to hold multiple nationalities in Germany, regardless of their original citizenship.

For more information on the upcoming changes to dual nationality and citizenship rules, see our explainers below: 

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