Gas and oil prices have risen particularly sharply.
(Photo: IMAGO/Rolf Poss)
Frankfurt/Berlin Consumer prices in Germany rose by 7.5 percent year-on-year in July. This was announced by the Federal Statistical Office on Thursday based on a preliminary estimate. It is the second month in a row that inflation has fallen – albeit at a high level.
In June the value was 7.6 percent, in May it was 7.9 percent. The reason for the somewhat weaker price pressure is primarily the short-term effects of the tank discount and the 9-euro ticket. Both have been in effect since June, both are limited to the end of August. Economists expect inflation to rise again significantly thereafter.
This is putting the European Central Bank (ECB) under pressure. It had long assumed that the price surge would only be a short-term phenomenon and therefore reacted late.
Last week, the central bank raised interest rates for the first time in eleven years. The increase was surprisingly high at 0.5 percentage points.
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However, interest rate increases cannot curb inflation immediately because they usually only have an effect with a time lag. As a result, the inflation problem is likely to worsen once the relief ends.
The biggest risk
A major factor of uncertainty is whether Russian gas will continue to flow to Germany and Europe. “If we were spared gas rationing, inflation should reach its peak in the fourth quarter at rates of almost nine percent,” expects Commerzbank chief economist Jörg Krämer. “If Russia cut off gas supplies completely for an extended period of time, inflation would quickly soar to over 10 percent.”
Most recently, the Russian state-owned company Gazprom has significantly reduced its deliveries through the Nord Stream 1 Baltic Sea pipeline. Whether he will resume it is uncertain. Speculations about impending shortages have led to a drastic increase in gas prices in the past few days.
Federal Economics Minister Robert Habeck (Greens) also announced on Thursday that a new surcharge for gas consumers will probably be introduced from October. Gas importers can then pass on 90 percent of their additional costs incurred due to a lack of Russian supplies to all gas consumers.
The levy is intended to support the suppliers who have gotten into financial difficulties and to curb gas consumption. The amount of the levy has not yet been determined – but according to Habeck it will burden an average household in the mid-hundred euro range.
Federal government prepares relief
In order to cushion these burdens, the federal government is preparing new measures. The focus is on a reform of the housing benefit. Chancellor Olaf Scholz (SPD) announced last week that the circle of beneficiaries would be expanded at the turn of the year.
In addition, a flat-rate heating fee is to be introduced. Special help for pensioners and students and a reorganization of unemployment benefits are also planned. In addition, Finance Minister Christian Lindner (FDP) proposed, among other things, to increase the basic tax allowance. This is the income up to which no tax has to be paid as a subsistence level. He also wants to raise child support.
>> Read also: Appeals instead of incentives: economists are growing dissatisfied with Habeck’s gas austerity policy
According to an analysis by the institute for macroeconomics and business cycle research (IMK), which is close to the trade unions, the current price surge is hitting low-income households in particular. The study still refers to the inflation rate of June, which was 7.6 percent. However, the distribution of the loss of purchasing power is likely to have been similar in July.
Who is hit by inflation and how
According to the IMK, a low-income family of four had to deal with price increases averaging 8.5 percent in June. The individual inflation rate for high-income singles, on the other hand, was 6.3 percent. The differences result from different consumer habits.
Poorer citizens often have to spend more on fuel because they have to travel farther to work, have higher energy costs due to outdated heating systems, or are more dependent on staple foods, which are rising in price more than more expensive food. If you look specifically at the prices for food, energy and fuel, the differences are even greater.
The strongest price driver in July was energy, which rose by 35.7 percent compared to the previous year. Food prices increased by 14.8 percent, services by 2 percent and rents increased by 1.8 percent.
Commerzbank chief economist Jörg Krämer does not see that the trend is changing quickly. He points out that the inflation expectations measured by the Bundesbank have risen sharply recently. For this reason, Krämer expects higher wage increases in the medium term. “Inflation is likely to remain well above the 2 percent target the ECB is targeting for many years to come,” he predicts.
More: The ECB raises the key interest rate late – now a crash is imminent