The Bundesbank and the Ifo Institute warn independently of one another that inflation rates will continue to rise sharply. In their opinion, energy prices in particular have not yet reached their limit. But prices will continue to rise in other areas as well.
“In the autumn months, an inflation rate of more than 10 percent is possible,” said Joachim Nagel a few weeks ago in an in-house interview. The President of the Bundesbank also provided the historical dimension of such an inflation rate. Two-digit values were last measured in Germany in 1951, i.e. 71 years ago. At that time, the prices were still recalculated on a quarterly basis, and the methodology has also changed since then. The Ifo Institute also has historical concerns. In the new price forecast from Munich, Ifo economist Timo Wollmershäuser also expects more than ten percent inflation.
The bad news is based on information from the companies themselves. The Ifo Institute published its price expectations from its August survey today. Companies should indicate whether they plan to increase or decrease their prices in the next three months. 73.8 percent stated that they plan to increase prices, although the shares vary depending on the industry.
Consumers will be hit hardest with food. Here, at 98.4 percent, by far the majority of companies stated that they wanted to raise their prices in autumn. This is followed by clothing manufacturers (94.6 percent), followed by gastronomy (88.2 percent), manufacturers of electronic equipment (85.7 percent), manufacturers of shoes and leather goods (85.6 percent) and travel agencies (84.7 percent) .
In addition, both the Bundesbank and the Ifo Institute expect energy prices to continue to rise. “Until now, energy suppliers have only passed on a small part of the sharp rise in electricity and natural gas prices to their customers,” says Wollmershäuser. The problem for economists: Energy prices are difficult to predict because they are currently being driven by many short-term shocks. Take the gas price as an example: The costs for a megawatt hour at the Dutch trading point TTF initially rose by 156 percent after the Russian invasion of Ukraine, then fell again by 63 percent by the beginning of June. When Russia began curbing shipments through Nord Stream 1, they shot up again by 307 percent. After Germany announced that it had filled its gas storage facilities more than planned despite everything, it went down again by 37 percent.
“The development of energy prices in particular is difficult to predict,” says Nagel. Nobody knows whether Russia will surprisingly pipe natural gas through Nord Stream 1 again next week and if so, how much, or whether the country prefers to continue flaring its deposits in the Barents Sea. The war in Ukraine may also end in a few weeks, but it may continue into next year.
For this reason, economists do not assume that the inflation rate will normalize again next year to the level of previous years – i.e. 1.x percent – or at least reach the level of 2.0 percent targeted by the European Central Bank (ECB). “In our June projection, we expected inflation of 4.5 percent for 2023. Meanwhile, Russia has drastically reduced its gas supplies, and natural gas and electricity prices have risen more than expected. The probability is growing that inflation will be higher than previously forecast and that we will have an average of six before the decimal point next year,” says Nagel.
That would at least be a record since reunification. The Federal Statistical Office does not currently keep longer time series. The federal government can also do its part to ensure that reality does not turn out better than the forecast. “Consumers will limit their consumption,” says Wollmershäuser. Of course, if you have to spend most of your money on gas, electricity and groceries, you won’t have any money left for a visit to a restaurant or new shoes.
To counteract this, economists believe that targeted relief is the best way to help. Melinda Fremerey from the Institute of German Economics in Cologne explains, for example, that one-off payments or the flat-rate heating fee that will be included in the third relief package help fight inflation more than nationwide measures. The 9-euro ticket and the fuel discount certainly had their advantages, but neither of them are an effective remedy against rising inflation.
That’s not a long-term solution,” says Fremerey. She expects ticket prices to rise even more sharply than usual in autumn because the federal subsidy for the 9-euro ticket could not cover all of the transport company’s costs and sometimes required a great deal of administrative work. After the tank discount expired, petrol prices also rose more significantly than they had previously fallen as a result of the political measure.
Follow the author on Facebook
Follow the author on Twitter
