Inflation rates at the level of 2022 have never been seen in reunified Germany. Consumers can afford less and less for one euro. What do energy price brakes and interest rate hikes bring?
Life in Germany has skyrocketed in the past year. Consumer prices shot up by an annual average of 7.9 percent, as calculated by the Federal Statistical Office on the basis of preliminary data. This is the highest inflation since the founding of the Federal Republic. 2023 promises at least some relaxation.
What are the main reasons for the increased inflation?
Above all, the enormous increase in energy prices after the start of the Russian war of aggression against Ukraine fueled inflation. Gas and heating oil sometimes cost more than twice as much as in the same month of the previous year. Fuel prices reached unprecedented heights. In the course of the year, the Wiesbaden statisticians increasingly observed “price increases for many other goods, especially food” in Europe’s largest economy.
How did the 9-euro ticket and tank discount work?
The measures, which were limited to three months, provided some relief in the summer. After the expiry of cheap tickets for local public transport and the reduction in taxes on fuel, the inflation rate picked up again. The highest rate was measured in October, when consumer prices rose by 10.4 percent year-on-year.
What is the European Central Bank doing?
For the first time in eleven years, the currency watchdogs increased interest rates in the common currency area last year. Further increases are expected in 2023. “We’re not letting up. We have to go a long way,” stressed ECB President Christine Lagarde in mid-December. Increases in key interest rates make credit more expensive and curb demand. This helps bring down the inflation rate. However, that doesn’t happen overnight. Bundesbank President Joachim Nagel explained that interest rate hikes usually take effect with a delay of one and a half to two years: “That’s why I have to ask for your patience at this point.”
What are the consequences of the energy price brakes?
With price brakes for electricity and gas, the state wants to cushion the consequences of the increased costs for consumers and companies. The brakes should apply to households and small and medium-sized companies from March. Retrospective relief is planned for January and February. According to economists, this will dampen the rise in inflation. However, the chief economic officer of the economic research institute IfW, Stefan Kooths, says: “The lower inflation rate (…) is bought at a high price through massive subsidies, which only superficially alleviate the energy crisis.”
Can inflation be expected to fall significantly this year?
In December, inflation was 8.6 percent compared to the same month last year – and thus lower than in November. Economists give consumers and companies little hope of a significant drop in inflation for the new year, despite the government price brakes. “In the course of 2023, the inflation rate reported monthly is likely to fall again, but only gradually at first,” expects the chief economist at the state development bank KfW, Fritzi Köhler-Geib. Economic research institutes are expecting inflation rates of between a good 5 percent and more than 6 percent on average. According to their estimates, the price pressure should not ease significantly until 2024.
Will inflation also be fueled by rising wages?
So far there has been little evidence that sharply rising wages in response to inflation are fueling prices further. According to preliminary calculations by the collective bargaining archive of the Economic and Social Science Institute (WSI) of the Hans Böckler Foundation, which is close to the trade union, the collective wages in 2022 increased by an average of 2.7 percent compared to the previous year. The increase was thus well below the rate of inflation.
According to the WSI, employees can hope for significantly higher collective bargaining increases this year in view of the most recent agreements. In the opinion of Bundesbank President Nagel, however, the wage agreements have kept the balance between the interests of employees and the competitiveness of companies, as he recently told the “Stern”.
Source: Stern
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
