Material shortages and increased numbers of corona infections are burdening the economy. The economic recovery is likely to pause. Consumers first have to adjust to rising prices.
Inflation rates of just under 6 percent and a preliminary end to the economic recovery in Germany: the outlook for the end of the year has clouded over amid rising corona numbers.
The Bundesbank believes the harmonized HICP consumer price index, which the ECB uses for its monetary policy, to jump to just under 6 percent in November is possible, according to the German central bank’s monthly report published on Monday. At the same time, the economic recovery is likely to take a breather in the fourth quarter.
Inflation rates of 6 percent were last seen in 1992
The Federal Statistical Office last determined inflation rates of around 6 percent in 1992 using the consumer price index, which is only measured for German purposes. The HICP did not yet exist at the time. In October of this year, higher energy prices in particular drove HICP inflation to 4.6 percent.
The Bundesbank attributes part of the increase in consumer prices to special effects such as the temporary reduction in VAT in Germany from summer 2020 in the corona crisis. The old tax rates have been in effect again since the beginning of this year.
The special effect from VAT will no longer apply from January 2022. “Then the rate of inflation should fall noticeably, although the sharp rise in market prices for natural gas will probably only be passed on to consumers for the most part after the turn of the year,” wrote the central bank. The experts anticipate that the rate of inflation will gradually decrease in the coming months of the coming year. “But it could stay well over 3 percent for a long time.”
Minimum wage could increase wage pressure
In this context, the central bank is critical of the plans of the possible new federal government to increase the minimum wage to 12 euros per hour towards the end of 2022. This would have “spill-over effects that cannot be neglected” on the higher wage groups, explained the Bundesbank. “This is also likely to increase wage pressure in the future.” Behind this is concern about a spiral of rising prices and rising wages, for which economists have not yet seen any signs.
The European Central Bank (ECB) is aiming for an annual inflation rate of 2 percent for the currency area of the 19 countries and is at least temporarily ready to accept a moderate increase or decrease in this mark. From the perspective of the central bank, the current rise in inflation is temporary. Europe’s monetary watchdogs will therefore not allow themselves to be urged to exit the policy of cheap money more quickly. ECB President Christine Lagarde recently affirmed that the central bank will continue to support the economy even after the acute pandemic is over.
Effects of the increasing number of infections
According to the Bundesbank, delivery bottlenecks and the corona infection numbers are slowing the economy in Germany towards the end of the year. “The economic recovery will probably take a breather first,” wrote the central bank. The gross domestic product could come to a standstill in the fourth quarter.
In the summer, according to preliminary data, Europe’s largest economy grew by 1.8 percent compared to the second quarter. Above all, the consumer’s propensity to consume had contributed to this.
According to the Bundesbank, the surge in growth that emanated from the service sector after the end of many corona restrictions has largely expired for the time being. Some containment measures have also been tightened again in view of the increasing number of infections. At the same time, the industry is likely to suffer from delivery bottlenecks in the fourth quarter and thus dampen overall economic growth. According to the central bank, a positive growth impulse is emanating from the construction industry.
Decrease in consumer spending
In the Corona year 2020, the monthly consumer spending of private households fell by 3 percent to an average of EUR 2507 compared to the previous year, according to the Federal Statistical Office. Lockdowns and restrictions on the number of people, for example in leisure and service facilities, led to a decline.
Overall, the Bundesbank sees risks from an intensified pandemic throughout the winter half-year. “As things stand at present, the macroeconomic effects are likely to be less severe than in previous pandemic waves.”
Source From: 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.
