The federal government estimates that the inflation rate will average 3.3 percent this year.
(Photo: dpa)
Frankfurt At the start of the year, the Bundesbank expects prices to remain under extremely high pressure. The inflation rate is likely to “remain extraordinarily high,” she warned in her monthly report presented on Monday. This is becoming apparent, although at the beginning of the year there were no special effects that contributed to the upward trend in prices last year.
Among other things, the Bundesbank counts effects on value added tax and the CO2 tax. The federal government had temporarily lowered VAT in the second half of 2020, causing prices in the second half of 2021 to be higher compared to the lower values of the previous year.
In addition, since the beginning of 2021, the emission of one ton of CO2 in Germany, which is caused by the combustion of diesel, petrol, heating oil and natural gas, has cost a total of 25 euros. This year, on the other hand, the fee will increase only slightly to 30 euros. In addition, according to the Bundesbank, non-energy services and industrial goods rose sharply at times in 2021, mainly due to supply bottlenecks and price increases to compensate for previously suffered profit losses: These factors would now also “have an effect into the new year”, according to the Bundesbank economists.
They also point out that higher oil and gas prices could push up inflation further. These fell at the beginning of December. In the meantime, however, the price of oil has risen significantly again. At just under $88 a barrel (around 159 liters), the price of European Brent oil is close to its seven-year high.
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The Bundesbank attributes this to robust global demand for crude oil and shortfalls in supply. For example, political unrest in Kazakhstan caused oil exports to fall. Even individual OPEC countries such as Nigeria or Ecuador are currently unable to meet their production quotas. Geopolitical factors such as the Ukraine conflict also play a role. Overall, the gap between the oil price and the previous year is currently around 50 percent.
Gas prices have risen even more. They currently exceed their previous year’s price many times over. The Bundesbank assumes that this will result in the corresponding end customer tariffs for gas being “substantially increased.” As a rule, prices for private customers are adjusted at the beginning of the year, which should be reflected in inflation in January.
Energy is currently by far the strongest driver of inflation. In Germany, the prices for heating oil, gas and petrol rose by a total of 18.3 percent in December – by 26 percent in the euro area. Imports also became significantly more expensive – and not just for energy. The price pressure in November was also “pronounced” for other goods from abroad.
The devaluation of the euro over the past year is also noticeable here. At the beginning of 2021, the European common currency was still at 1.23 US dollars, it is currently trading at just under 1.13 dollars. If the external value of the currency falls, imported goods from abroad become more expensive in Germany. However, economists assume that it will take some time before exchange rate effects are fully reflected in prices.
In December, the inflation rate in Germany was 5.3 percent according to the calculation method of the consumer price index (CPI) preferred by the Federal Statistical Office – it was 5.7 percent according to the European calculation method of the harmonized consumer price index (HICP). Both approaches are slightly different. In the HICP, goods have a higher and services a lower share compared to the CPI.
During the pandemic, however, the prices for goods and industrial goods have risen more than for services. Among other things, this is related to a change in consumer behavior. For example, many people have withdrawn from gyms because of the risk of infection. Instead, more people bought sports equipment for their own homes.
In 2021 as a whole, inflation in Germany measured according to the HICP was 3.2 percent. The Bundesbank even expects an average of 3.6 percent for 2022. It forecasts 2.2 percent for each of the following two years.
With material from Reuters
More: Interview with ECB Governing Council member Rehn: “Germany contributes to inflation uncertainty”