Rise in cost of living: Prices are rising and rising
Berlin · Germans had to spend about 3.1 per cent more on goods and services in 2021. Experts also expect a high inflation rate for 2022.
Butter, cameras, car park rent - it was not only energy prices that experienced an above-average increase last year. Overall, Germans were spending 3.1 per cent more on living expenses than in 2020, according to preliminary calculations by the Federal Statistical Office. In November and December, the inflation rate even exceeded five per cent. Experts expect a significantly lower figure for 2022. However, prices will continue to rise steeply.
"In my opinion, the 5.3 per cent in December was the peak," says Friedrich Heinemann, economic researcher at the Centre for European Economic Research (ZEW) in Mannheim and specialist for public finances and the euro.
In November, inflation had been 5.2 per cent. Heinemann estimates that the rate in Germany will be three to 3.2 per cent this year. The banking association has recently been somewhat more optimistic: President Christian Sewing had spoken of 2.5 to three per cent at the end of the year.
According to the ZEW expert, the inflation rate will already fall in January and February for statistical reasons alone - that is, without prices actually changing. "For one, the VAT effect will be eliminated. As an emergency aid after the outbreak of the pandemic, VAT had been partially lowered in 2020. At the beginning of 2021 it went back to the normal level. This was reflected arithmetically in the annual tax rates until the end of 2021," Heinemann explains.
Supply isn’t growing as fast as demand
A second statistical effect will disappear more slowly, Heinemann believes. "After the outbreak of the pandemic, energy prices fell sharply for a time in 2020. At that time, fuel prices approached the one-euro mark. In the meantime, energy prices have risen again to a high level."
And they will probably continue to rise, especially for electricity. "Prices on the electricity exchanges have already increased fivefold," says Heinemann. This is a consequence of the so-called “Energiewende”, which is the transition from fossil and nuclear power to renewables. Demand for electricity is rising and supply cannot keep up. “In addition, the old federal government's CO2 tax is making energy even more expensive." The new federal government has announced that it will not change this.
Companies are having to pay more to get workers
Wage agreements could also drive up inflation. "Employees' purchasing power is dwindling in the face of high inflation rates, so they could asking for significantly more money than usual in a wage negotiation,” Heinemann says. In addition, the shortage of skilled workers is making itself felt, and companies are paying more in order to get staff.
The significantly higher inflation rate in Germany compared to previous years is also having an impact on the Eurozone: "The inflation rate in the Eurozone will be above the European Central Bank's target of a good two per cent in 2022," Heinemann said, "if only because of Germany’s position." So the central bank would have to intervene. Usually, it would raise interest rates. But the European Central Bank (ECB) is in a dilemma, says Heinemann: "On paper, its task is to fight inflation. On the other hand, it conjures up a debt crisis in some countries if it raises interest rates." This is because the central bank has to provide money for countries in crisis, he says. "Fighting inflation is difficult in such a phase."
(Originalartikel: Björn Hartmann/Translation: Jean Lennox)
