Berlin German producers are asking less and less money for their goods. Producer prices of industrial products have fallen for the third month in a row. In December they are around 0.4 percent compared to the previous month, as the Federal Statistical Office announced on Friday.
In relation to the same month last year, producer prices in December are 21.6 percent gone up. But the comparison with the level before the Russian attack on Ukraine is now less meaningful because there have been huge price shifts since the outbreak of the war.
“Now this is another spectacular decline,” says Düsseldorf economist Jens Südekum. “This is a very good sign for the development of inflation.”
Producer prices are arguably the most important precursor to inflation. In the statistics, the prices for raw materials and industrial products are listed from the factory gate – even before the products are further processed or sold.
Producer price developments suggest that recent developments in inflation are likely to continue. In October, consumer price increases of 10.4 percent compared to the same month last year reached their highest level in reunified Germany. Since then, the inflation rate has been falling, most recently to 8.6 percent in December. “The cost push triggered by the supply bottlenecks and the resulting rising prices for raw materials and intermediate goods seems to have passed its peak,” said Commerzbank economist Ralph Solveen.
The most important factor is again energy prices
The most important factor for the decline in producer prices in December was again the gradual relaxation on the energy markets. According to figures from the Federal Statistical Office, energy prices fell by one in December percent down compared to the previous month.
However, the price decline slowed down significantly: energy prices fell by 9.6 percent in November and by 10.4 percent in October compared to the same month of the previous year. Previously, producer prices had been rising for a long time, since May 2020.
In December, a decline in oil in particular caused prices to fall. Light heating oil was 7.6 percent cheaper in December than in the previous month, motor fuels 7.8 percent. Electricity became 1.5 percent more expensive; but the price had previously fallen.
Large industrial companies that buy gas, oil and electricity directly benefit from this. So there is a double relief: the economy is under less pressure and some companies will lower their prices, which also benefits the end customer.
Excluding energy, producer prices in December remained the same as in the previous month. Food prices, in particular, have continued to rise; sugar, for example, cost 11.6 percent more than in the previous month.
Some of the energy prices, which rose sharply in summer and autumn, are only now being passed on by the producers. On the grain market, the frequent failure of deliveries from Ukraine is driving prices. Federal Minister of Agriculture Cem Özdemir (Greens) recently called for VAT relief on food again.
In addition to energy, the prices for intermediate services also fell in December, falling by 0.4 percent compared to the previous month. Metal prices, for example, fell by one percent, softwood lumber by as much as 15.6 percent.
The sharp rise in producer prices up to October ensured that the annual average for 2022 was 32.9 percent, the largest increase since the survey began in 1949. And mostly because of energy, where prices rose 86.2 percent compared to 2021. Food prices increased by 18.9 percent.
Price relaxation raises hopes for the economy
Leading indicators, above all producer prices, give the federal government hope that inflation will ease further. In its latest economic forecast, it is expected to lower its inflation forecast for 2023 to six percent. In the autumn projection, she had assumed seven percent. A decline in inflation to 2.8 percent is now expected for 2024.
The easing of prices could lead to better economic development overall. The Federal Government is no longer assuming a recession in Germany for the current year.
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In the new economic forecast that Federal Economics Minister Robert Habeck (Greens) will present next Wednesday with the annual economic report, the government has not only adjusted its inflation forecast.
She also expects gross domestic product (GDP) to grow by 0.2 percent in 2023. The Handelsblatt learned this from informed circles, the Reuters news agency had first reported. In October, the government had expected a decline of 0.4 percent.
However, the figures from the new forecast are still provisional. They are subject to change before the annual economic report is published.
The German Savings Banks and Giro Association (DSGV), on the other hand, is more pessimistic. The DSGV does not expect inflation to fall too quickly and expects a rate of eight percent in 2023. The outlook for GDP is correspondingly worse. Here, the interest group expects a minus of 0.8 percent.
More: Five reasons that speak against a recession in Germany