Wiesbaden (dpa) – Bad news for consumers: The inflation rate in Germany jumped to its highest level in almost 30 years in July.
Consumer prices were 3.8 percent above the level of the same month last year, as the Federal Statistical Office announced on the basis of a preliminary calculation. As a result, life in Germany has become much more expensive – and inflation is likely to continue to rise in the coming months. However, economists consider this to be a temporary phenomenon.
In July 2021, the annual rate of inflation in Europe’s largest economy climbed above the three percent mark for the first time since August 2008 (3.1 percent). During the financial and economic crisis at the time, inflation had repeatedly exceeded three percent. The Wiesbaden statisticians last determined a value higher than 3.8 percent for Germany in December 1993, when it was 4.3 percent.
After the slight decline in inflation to 2.3 percent in May of the current year, the trend was reversed again. According to calculations by the Federal Office, consumer prices rose by 0.9 percent from June to July 2021. If prices increase in general, one speaks of inflation. The money is then worth less, and consumers can buy one euro less than before.
Overall, goods rose in price in Germany within a year by 5.4 percent. The rise in energy prices was above average by 11.6 percent. In July of the current year, consumers had to pay 4.3 percent more for food than a year earlier. In all categories, prices rose significantly more than in previous months.
Further price jumps are expected
Economists expect further price jumps in the coming months. A weighty reason is a so-called base effect: In order to stimulate consumption in the Corona crisis and give the German economy a boost, the federal government had reduced VAT for a limited period from July 1, 2020 to December 31, 2020. The regular tax rate decreased from 19 percent to 16 percent, the reduced tax rate from 7 percent to 5 percent. The regular VAT rates have been in effect again since January 2021, so goods and services tend to be expensive again.
The withdrawal of the temporary VAT reduction is now fully effective, stated Christoph Swonke from DZ Bank: “The service sectors particularly hard hit by the pandemic, such as gastronomy, hotel and hairdressers, are also demanding higher prices in order to make up for what has been missed.”
In addition, energy prices have been rising at an above-average rate for months. A year ago, with the outbreak of the Corona crisis, crude oil prices collapsed due to low demand on the world market. They have since recovered. The price of crude oil is currently around 70 percent above the level of the previous year. In addition: In Germany, 25 euros per tonne of carbon dioxide (CO2) has been due since January, which is produced when diesel, gasoline, heating oil and natural gas are burned. Both ensure that refueling and heating become more expensive.
Economists also explain the strong rise in prices by the fact that raw materials are currently in great demand in the global economic upturn and are therefore scarce. The industry is already complaining about delivery bottlenecks and delays in delivery times in many areas.
Economist: Current inflation is the result of the pandemic
“In the next few months, Germany is likely to experience the strongest surge in inflation in three decades,” predicted ZEW economist Friedrich Heinemann. “The current inflation is a consequence of the pandemic and its global economic upheavals. A demand that has built up over many months is currently meeting a global supply of goods that is still limited. “
Commerzbank also points to the scarcity of raw materials as a cause of the upward price trend – in addition to the “considerable” contribution of the VAT effect. “For an inflation rate noticeably above two percent in the long term, however, wages would also have to rise, for which there are no signs yet,” said Commerzbank economist Ralph Solveen.
In the next few months, however, economists believe inflation rates of around five percent in Germany are possible. “For the time being, you should get used to the higher inflation rates. The excursion over the three percent mark takes longer, ”said Thomas Gitzel from VP Bank. “But anyone who derives a sustained surge in inflation from this is wrong.”
The European Central Bank (ECB), for which stable prices in the euro area of the 19 countries are the main goal, has already gained more flexibility in dealing with comparatively high inflation rates with its new strategy: The central bank is now aiming for an annual rate of inflation of two for the currency area Percent and is at least temporarily ready to accept a moderate overshoot or undershoot of this mark. According to preliminary figures from the Federal Statistical Office, the harmonized consumer price index HICP, which the ECB uses for its monetary policy, was 3.1 percent above the level of the same month last year and 0.5 percent above the level of June 2021 in Germany.
The FDP finance politician Florian Toncar warned: “The drastic price increase is absolutely worrying and should not be belittled too quickly and attributed to special effects. We have ten years of ultra-loose monetary policy behind us, so there is every reason to be concerned that prices could continue to rise. “