German consumers are suffering from the price increases.
(Photo: IMAGO/Michael Gstettenbauer)
Frankfurt Whether for everyday goods such as food, energy or other consumer goods: the drastic rise in prices is increasingly restricting the financial freedom of action of Germans. You’re running out of money to save.
“The savings cushions from the Corona period have now melted away in many households,” said Timo Wollmershäuser, head of the economy at the Ifo Institute, in a current analysis of bank balance sheets. Until now, the Germans could have maintained their standard of living by drawing on the surplus.
But that could change in the future when the savings are used up. According to the savings banks, the majority of Germans are increasingly reaching their financial limits.
“We expect that because of the significant price increase, up to 60 percent of German households will have to use their entire disposable income – or more – monthly for pure living expenses,” said Helmut, President of the German Savings Banks and Giro Association (DSGV). Schleweis, the “Welt am Sonntag”. A year ago, according to the Sparkasse “wealth barometer”, only 15 percent were unable to put money away.
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Deposits at banks increased significantly between the second quarter of 2020 and the first quarter of last year due to the pandemic.
Travelling, going to restaurants and other leisure activities were not possible or only possible to a limited extent, so that many households created large savings cushions. “If you take the average propensity to save in the five years before the outbreak of the corona crisis as a basis, a good 70 billion euros more were parked in bank accounts than usual during this time,” said Wollmershäuser.
But these so-called excess deposits were almost completely eliminated by the end of the first quarter of 2022. Because German consumers are suffering from the price increases. In addition, the elimination of most corona-related restrictions offers the opportunity to spend more money again.
Savings bank deposits collapse
In the first half of the year, the new deposits at the 360 German savings banks collapsed to 600 million euros. In the same period of 2021, the savings banks had received 25 billion euros.
Volksbanks and Raiffeisenbanks are also observing that customers have less room to manoeuvre. The board of directors of the Federal Association of German Volksbanken and Raiffeisenbanken (BVR), Andreas Martin, told the “Welt am Sonntag”: “High inflation robs consumers of purchasing power, which reduces their ability to save.”
The inflation rate in July was 7.5 percent above the previous year, having reached 7.9 percent in May, the highest level since the winter of 1973/1974. The fuel discount and nine-euro ticket are currently pushing up inflation for consumers, but this state aid will expire at the end of the month.
There is therefore no improvement in sight: when the government’s relief measures come to an end, the Bundesbank expects inflation rates of around ten percent in the autumn. “Double-digit inflation rates were last measured in Germany more than seventy years ago,” said Bundesbank President Joachim Nagel. In the fourth quarter of 1951, according to the calculations made at the time, the inflation rate was eleven percent.
In the coming year there is also no all-clear in sight. “The issue of inflation will not go away in 2023,” said Nagel. Ifo economics chief Wollmershäuser is also forecasting sharp increases in consumer prices for the current year.
Savings plans are suspended
A first group of savers has therefore already shut down their savings contracts, according to a survey by the German Institute for Old-Age Provision (DIA) at the beginning of August. Around a third of the approximately 2,000 respondents are also examining whether they can do without existing pension contracts in order to gain financial leeway for their living expenses. A significant proportion of Germans even fear having to liquidate financial reserves in autumn or winter in order to make ends meet.
The savings banks are also expecting the situation to worsen significantly, especially in autumn and winter, especially for people with small and medium-sized incomes. According to the DSGV, the tense situation is already evident when the current account is overdrawn. Those who use the so-called overdraft facility to bridge short-term bottlenecks are now “much more exploiting” the framework on average.
More: The first consumers are suspending their savings plans because of high inflation