Inflation continues to rise: Economic researchers from the Munich Ifo Institute asked 7,000 companies whether they were planning price increases – and measured a new record.
Last year, the reduction in VAT resulted in lower prices, now it is significantly more expensive for consumers. According to the Munich-based company, more companies want to increase their prices than ever before. The economic researchers therefore anticipate that inflation will continue to rise until the end of the year and will also be high in the first few months of next year.
The Ifo Institute, which specializes in economic research, asks around 7,000 companies every month whether they are planning price increases for the next three months. They form a continuous index from the answers. This now reached the highest value since the surveys began in 1991. The index rose from 41 to 45 within a month. This means that 45 percent of companies want to increase their prices, whereas companies with price reductions have already withdrawn.
Inflation remains high
“Of course, this is not without consequences for consumer prices,” says the head of the Ifo economic forecast, Timo Wollmershäuser. “By the end of this year, the inflation rate is likely to rise to just under 5 percent and also initially noticeably exceed 3 percent in the coming year. On average, we now expect an inflation rate of 3 percent this year and two and a half to 3 percent in 2022.”
Most price increases expect retail companies, of which (after deduction of companies that want to cut) 65 percent want to raise prices. But industry (56 percent) and construction (44 percent) are also seeing sharp increases in price expectations. The price expectations for companies in the service sector are still the most moderate – but here, too, a new record is set with a balance of 32.
Price increases for coffee, grain, wood
According to the Ifo Institute, the main reason for the rising prices is that raw materials and intermediate products are currently scarce and expensive. This is also shown by current data from: According to this, import prices in October 2021 were a whopping 21.7 percent higher than in October 2020. The last time there was a similar high annual increase was 1979/1980 as part of the second oil price crisis, the statisticians explained.
This time, too, high energy prices are particularly responsible for the inflation: The import prices of crude oil have doubled within a year, natural gas and hard coal even tripled. Ores, metals, plastics, fertilizers and wood also became noticeably more expensive. Imports of green coffee were 61 percent more expensive, grain 33 percent and notebooks 9 percent.
Manufacturers and retailers are now passing these higher prices on to customers, explains the Ifo Institute. The further course of the cost increases is therefore the greatest risk for the development of inflation. If the unions achieve high degrees in the upcoming collective bargaining negotiations to compensate for the workers’ loss of purchasing power, this could drive the development further. Economists speak of a wage-price spiral in this context.
Fear of the wage-price spiral
How great the risk is that we will slip into such a vicious circle is a hotly debated question among economists at the moment. Most recently, many experts were of the opinion that it will not come to that because special effects such as the reduction in value added tax that have been withdrawn will no longer apply in the coming year.
Labor market researcher Enzo Weber recently explained in sternInterview, he did not see a wage-price spiral coming and referred to such special effects. “High energy prices and the withdrawal of the VAT cut from last year follow a time when prices were very low.” On the other hand, he cannot yet observe unusually rising wages.
A few weeks ago, Kerstin Bernroth from the German Institute for Economic Research (DIW) also spoke of a temporary phenomenon. But she also stated: “The longer inflation stays so high, the sooner expectations will be reflected in wages and prices.” Tomorrow’s inflation will also be driven by people’s expectations of how high it will be tomorrow. “This is a self-fulfilling prophecy.”
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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.
