Berlin For the first time since May 2020, German companies have had to spend less on purchasing than in the previous month. Producer prices for industrial products fell by 4.2 percent in October compared to September. This was announced by the Federal Statistical Office on Monday.
“The surprisingly sharp drop in producer prices could be a harbinger that we have passed the peak of inflation,” says Düsseldorf economist Jens Südekum. It is often said that inflation is here to stay. “Now she could say goodbye faster than many thought.”
Looking at the data, the LBBW economist Jens-Oliver Niklasch spoke of a spectacular “price drop after all the months of significant price increases”.
According to the Wiesbaden statisticians, the main reason for the decline is “the development of energy prices”. These fell by a total of 10.4 percent compared to September. Electricity prices fell by almost 17 percent across all customer groups. Gas became nine percent cheaper.
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If you exclude energy, producer prices in October rose slightly compared to the previous month, by 0.4 percent. Food prices in particular have continued to rise, with sugar costing 47 percent more.
How producer prices affect inflation
Producer prices are arguably the most important precursor to inflation. In the statistics, the prices are listed from the factory gate – even before the products are further processed or sold. Do the latest data now show that inflation has peaked?
“Especially in phases of high inflation, the following rule of thumb works quite well: A third of the producer prices arrive later in the consumer prices, i.e. the inflation rate,” explains economist Lars Feld, President of the Freiburg Eucken Institute.
The important thing here is “delayed”. Producer prices in October were “only” 34.5 percent above the same month last year, but in September they were still 45.8 percent. Assuming, like Feld, that a third of this is reflected in consumer prices, inflation should peak well above the last measured 10.4 percent – namely 15 percent. But then a decline is to be expected.
The economic forecasters of the leading economic institutes also expect the latter. You are assuming significantly higher inflation again in the fourth quarter of this year. Only then, in spring 2023, do they expect a decline. Economist Südekum therefore points out with a view to producer prices: “It is still too early to give the all-clear.”
This is also suggested by a survey by the Munich Ifo Institute published on Monday. Accordingly, German companies slowly and incompletely passed on their increased purchase prices to their customers.
“Far from being over the mountain”
In the past few months, companies have only passed on 34 percent of their purchase prices. By April, they plan to increase to 50 percent. “This is likely to lead to further inflationary pressure on consumer prices in the coming months,” says Ifo researcher Manuel Menkhoff. According to the companies themselves, weak demand, competitive pressure and long-term contract terms are preventing them from raising prices.
The sectors differ considerably: the industry plans most strongly to pass on higher purchase prices for energy, raw materials and pre-materials. 68 percent of companies want to do this. Construction then follows with 66 percent. In retail it is 53 percent, with service providers only 36 percent.
Alexander Kriwoluzky, head of macroeconomics at the German Institute for Economic Research (DIW), therefore says: “As far as inflation is concerned, we are far from over the hill.” But at least producer prices showed that “a lot is going in the right direction ” goes.
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