Energy prices are a key driver of inflation.
(Photo: dpa)
Düsseldorf / Frankfurt Inflation has only one direction this year: up. Consumer prices continued to rise in September as well. They rose by 4.1 percent year-on-year, as the Federal Statistical Office announced on Thursday based on an initial estimate. That is the highest level in almost 30 years.
The last time there was a stronger price increase was in the period after German reunification – in December 1993 at 4.3 percent at the time. In August consumer prices had already risen by 3.9 percent compared to the same period of the previous year. This time economists had even expected an average of 4.2 percent.
The biggest price driver was once more energy: in September it cost 14.3 percent more than a year earlier. Food prices rose by 4.9 percent, services by 2.5 percent, including apartment rents by 1.4 percent.
At the end of 2020, prices in Germany were still falling, and have been rising steadily since then. Bundesbank President Jens Weidmann expects monthly inflation to temporarily reach five percent over the remainder of the year. Like many economists, however, he attributes the increase mainly to one-off effects.
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In addition to pandemic-related delivery bottlenecks and catch-up effects in consumption, this also includes the withdrawal of the VAT reduction from last year and the new CO2 price. In Germany, 25 euros per tonne of CO2 have been due since January that is produced when diesel, petrol, heating oil and natural gas are burned. In addition, the oil price fell sharply in 2020 due to the pandemic. Compared to the low values of the previous year, it is now significantly higher.
That’s what German economists say
“With the current rise in inflation, the significantly higher year-on-year energy prices continue to play a central role. The energy factor accounts for around half of the rise in inflation. But there were also price increases in the service sector. The widespread opening of the leisure sector and the restaurant sector after the Corona restrictions was also used to adjust prices. The temporary reduction in VAT rates in the second half of 2021 will also contribute to inflation. Ultimately, the scarcity of many goods also plays a role in the higher consumer prices. Strong demand combined with scarce supply drives many prices up. This is currently the case, for example, in the area of used cars. Since new cars are missing due to delivery problems, consumers are switching to used cars.
The German inflation rate will even break through the five percent threshold in the remaining months of this year. In the coming year, however, inflation rates will fall significantly. The question is therefore not whether inflation rates will fall, but rather at what level inflation rates will settle in the coming year. The significantly higher gas price plays a decisive role here. In contrast to rising oil prices, higher gas prices only become noticeable after a significant delay in the inflation rate. However, it is already clear that the inflation rate in 2022 will level off at a higher level than was originally expected. To make matters worse, the problem of scarcity has also been with us for longer – longer than expected.
The ECB is uncomfortable with price developments. This became clear at the last central bank meeting. An extension of the ECB’s pandemic emergency purchase program beyond March 2022 is currently out of the question. The ECB must send clear signals in order to counter rising inflation expectations at an early stage. “
“The problems of global supply chains have reached a worrying extent, partly due to pandemic-related transport bottlenecks and production downtimes, but also to a lack of material and personnel capacities in view of the high global demand for goods. It is fundamentally correct that the supply disruptions should be overcome over time and that inflation should then decrease again, but this will take a few more months, as there is a lack of personnel and material capacities on a large scale. Consumers will pay around five percent more for an average shopping cart at the end of the year than they did a year ago, even if energy and commodity prices stop soaring and stay at their current levels. The European Central Bank will probably have to raise its recently upwardly revised price forecasts for the euro countries of 2.2 percent for 2021 and 1.7 percent for 2022. The loss of purchasing power that consumers are now feeling will result in significant demands to be made up in the coming collective bargaining rounds. “
But there are also fears that inflation in the euro area could remain high and force the European Central Bank (ECB) to tighten its monetary policy earlier. Most recently, there had been speculation about a possible first rate hike in 2023.
Oliver Rakau, an economist at Oxford Economics, points out that the current rise in gas prices is giving inflation an additional boost. “The bottlenecks in global supply chains are also becoming increasingly noticeable. In view of the brightening consumer climate and the savings made during the pandemic, they lead to rising prices for (durable) consumer goods such as cars. ”
From Rakau’s point of view, the delivery bottlenecks in particular could support prices well into the coming year. “But we still assume that inflation should calm down considerably in 2022,” he says. From his point of view, the price peaks for gas and electricity are likely to recede and the oil price will decline with flattening growth rates and increasing supply again.
But there are also economists who expect inflation to remain high for some time to come. They refer, among other things, to rising costs for climate protection and second-round effects due to the current price increases. What is meant are price increases as a reaction to previous cost increases. For example, when producers raise prices because primary products become more expensive, or when trade unions and employers agree on higher wages in response to increased inflation.
“Inflationary pressure will remain very high until the end of the year,” says Friedrich Heinemann from the Mannheim Center for European Economic Research. From his point of view, things will only get really exciting from January, when many special effects expire. “It is certain that inflation will then drop again from its current level. However, it is completely unclear how quickly a moderate level of around two percent can be reached again. This question is open for 2022. “
The ECB itself raised its inflation forecast significantly in September. For this year, it now expects a rate of increase of 2.2 percent for the euro area. After that, she reckons with lower values of 1.7 percent for 2022 and 1.5 percent for 2023.
From the point of view of economists, whether inflation stays higher for longer depends above all on whether wages also rise more strongly. So far, this has not been reflected in the data. However, the train drivers ‘strike recently caused a sensation, in which the train drivers’ union GdL managed to enforce significantly higher wages. Oxford Economics analyst Rakau considers the risk of a wage-price spiral to be low.
More: Plus 16.5 percent: German imports are becoming more expensive than they have been since 1981.