AA new wave of inflation is likely to hit Germany’s consumers. After the petrol price shock, the price rally for many foods and the expensive holidays, economists estimate that a new round of rising prices will start in October. The breather in the inflation rate due to interventions by the traffic light coalition will soon be over. In the past two months, inflation rates in Germany have remained high. However, the development from the spring did not continue unabated in the summer, as the current FAZ price report shows (see chart). But that is likely to change again soon – to the annoyance of many consumers.
Temporary slight decline
While the inflation rate rose to 7.9 percent this year by May, it was slightly lower in June at 7.6 percent and July at 7.5 percent. The figures for German inflation developed similarly, albeit at a higher level, according to the European method of calculating the Harmonized Index of Consumer Prices (HICP): from 8.7 percent in May it fell to 8.2 percent in June and 8.5 percent in July; a little relief.
There were two main reasons for this: on the one hand, state intervention in traffic in Germany was also reflected in the inflation rate; namely the temporary reduction in the energy tax on fuel, the so-called “tank discount”, and the cheap 9-euro ticket for local rail transport. On the other hand, many raw material prices have temporarily fallen on the international markets, from the copper price, because of its indicator function for the health of the world economy, also “Dr. Copper” called, up to the price of oil. The reason: Investors in the markets were worried about a global recession – because that could cause demand for commodities to fall.
Even if inflation as a whole did not continue to climb unchecked, consumers in Germany suffered from price increases in many areas. Energy prices rose the most compared to the previous year, with a plus of 35.7 percent. However, a slightly lower rate of increase was observed here in July than in the previous months. On the other hand, the rise in food prices has continued to increase month by month. The price increase last averaged 14.8 percent over the year. Behind this is, for example, an acceleration in the price increase for bread and cereal products. But dairy products such as quark and cream had also risen sharply in price, as did eggs. Salad, for example, had become cheaper again.
increase expected in October
“In August, inflation in Germany should change little and be in the range of 7.5 percent,” predicts Jörg Krämer, chief economist at Commerzbank. The elimination of the 9-euro ticket and the tank discount in September will then increase inflation by around one percentage point. In October, the gas surcharge should cause the inflation rate to jump again. Economics Minister Robert Habeck (Greens) has named a range of 1.5 to 5 cents per kilowatt for the gas levy, with the final amount still to be determined. “If the gas surcharge were low at 1.5 cents, inflation would rise to a good 9 percent in October,” says Krämer. “At 5 cents, it would probably be above the 10 percent mark.” Economist Krämer warns that citizens are facing “another massive surge in inflation”: “That severely reduces their purchasing power – the risk of recession increases.”
A possible extension of the 9-euro ticket for the train is still being discussed. The tank discount, on the other hand, has fewer friends, and its end on August 31 is likely to be sealed. If both are eliminated, inflation in September will be one percentage point higher than usual, estimates Karsten Junius, an economist at Bank Sarasin. In addition, the summer heat wave – like all temperature fluctuations – is likely to lead to higher prices for fresh food. “In addition, it gives us low water on the Rhine, which tends to exacerbate the existing supply and delivery bottlenecks.” The Covid wave, which is atypical for the summer, also led to a high level of sick leave, which certainly increased the shortage of workers, says economist Junius: “This should be particularly noticeable in the service sector, where consumers already have a lot of catching up to do.”
Holger Schmieding, chief economist at the Hamburg bank Berenberg, also expects the inflation rate to remain almost unchanged for August. However, there are certain uncertainties: “A lot depends on whether the dramatic increase in gas prices for new customers has already partially reached the consumer price index in August,” he says. “With the expiry of the tank discount and the 9-euro ticket and the higher gas prices, we have to expect inflation rates of around 10 percent or even slightly above that for the rest of the year from September onwards.”
Many economists had actually hoped that a so-called statistical base effect could dampen inflation rates somewhat over the course of the year. In the course of 2021, the price of oil had risen significantly. The further the year 2022 progresses, the more oil prices from this year are compared with the rise in oil prices from the previous year – the price increase over a twelve-month period is no longer as strong. However, there are now other price hikes that are hitting consumers. “Presumably, the higher costs for electricity and especially gas, including the new surcharge, will initially more than offset the base effects from the rise in energy prices a year ago,” says economist Schmieding: “But from around February 2023 onwards, the year-on-year inflation rates are likely to drop sharply .”