2023-06-25 10:56:29
The inflation rate perceived by people in Germany was 18 percent in May, according to a study published on Monday by the credit insurer Allianz Trade. This was almost three times higher than the officially calculated inflation rate of 6.1 percent.
READ ALSO: German inflation slows sharply in May
“There is a wide gap between perceived and actual inflation, especially in Germany,” Jasmin Gröschl, Senior Economist at Allianz Trade, told the Tagesschau.
In the eurozone as a whole, the perceived and actual inflation are around nine percentage points apart, whereas in Germany they are around eleven.
“This is not insignificant, because perceived inflation strongly influences consumers’ actions, for example in their purchasing behaviour,” said Gröschl.
“So this discrepancy plays an important role, especially for the economy and companies, as well as for interest rate policy.”
What accounts for the difference in real and perceived inflation?
According to the study, consumers pay more attention to price changes in frequently occurring purchases, such as food and beverages, fuel or other supermarket items.
“When these prices rise more than average there, people tend to perceive a much higher inflation,” it said.
In May, for example, food prices in Germany shot up by 14.9 percent compared to the previous year.
READ ALSO: EXPLAINED: How to save money on your groceries in Germany
Dairy products saw the highest increase, with a rise of over 28 percent, while bread and cereal products became almost 20 percent more expensive compared to a year ago.
Food prices are currently by far the strongest price driver among the goods sectors, according to Destatis, Germany’s statistical office.
Psychological aspects
Psychological aspects, demographic and regional differences – as well as individual consumer behaviour – can also lead to consumers assessing price increases differently than the official measurement.
People tend to focus on particularly clear cases of price hikes, whereas they often overlook stable or falling prices, according to the assessment.
This creates a distorted picture and a strong discrepancy between perceived and actual inflation.
In addition, inflation rates can vary depending on the region, city or even district. Official measurements are based on national or regional averages that may not accurately reflect the local situation, the authors write.
Big differences within the EU
Within Europe, official inflation rates continue to diverge widely. In May, rates varied between 2.8 percent in Greece to 21.5 per cent in Hungary. In neighbouring Austria, inflation was higher at 8.8 percent than in Germany (6.1 percent) and Switzerland (2.2 percent).
“Key factors in inflation are geographical proximity to Russia, dependence on energy and food imports, government intervention to lower individual prices and the strength of the respective currency,” Gröschl said.
In Germany, all the factors that influence the inflation rate come into play. In particular, high dependence on energy imports from Russia caused energy bills to rise sharply – though the government countered this with the electricity and gas price brake.
In the eurozone as a whole, a weak euro has increased inflation, as commodities traded in dollars, such as oil or gas, have become more expensive as a result.
Still, May’s actual inflation rate of 6.1 percent was the lowest Germany saw in over a year. It is projected that inflation will only return to its usual level of around 2.5 percent in 2024.
READ ALSO: Inflation in Germany drops to lowest level in more than a year
Vocabulary
Perceived inflation
Inflation – (the) cost of living/(the) inflation
discrepancy – (the) gap
Key factors – (the) key factors
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