Inflation in Germany accelerated unexpectedly in May due to higher energy and food prices. Goods and services cost an average of 7.9 percent more than a year earlier, according to an initial estimate by the Federal Statistical Office. Economists had expected only 7.6 percent after the inflation rate had been 7.4 percent in April. The inflation rate was last similarly high in the winter of 1973/1974, when mineral oil prices also rose sharply as a result of the first oil crisis.
“Since the beginning of the war in Ukraine, energy prices, in particular, have risen noticeably and have a significant impact on the high rate of inflation,” said the statisticians. Energy prices rose by 38.3 percent compared to the same month last year. Food prices also increased at an above-average rate of 11.1 percent. In addition, there are delivery bottlenecks due to interrupted supply chains due to the corona pandemic, which also made many goods more expensive.
Experts believe that inflationary pressures will remain very high for the time being. “There is probably still some pressure in the pipeline for goods affected by delivery bottlenecks and for food before the situation is likely to ease from autumn,” said Holger Schmieding, chief economist at Berenberg Bank. “But the tank discount and other interventions should ensure that the inflation rate in Germany does not continue to rise in the coming months.” The federal government will waive around three billion euros in taxes in the next three months to make petrol and diesel cheaper from June to the end of August. In purely mathematical terms, this means 29.55 cents less for petrol and 14.04 cents less for diesel.
source: tradingeconomics.com
The sharp rise in consumer prices is having a negative impact on the purchasing power of Germans. Although wages rose in the first quarter by a strong 4.0 percent compared to the same period last year. However, since prices increased by 5.8 percent during this period, real wages fell by 1.8 percent. The Institute for Macroeconomics and Business Cycle Research (IMK), which is close to the trade unions, assumes that the real wage losses will continue at least until the end of the year. “A trend reversal is possible in the coming year,” said the scientific director of the IMK, Sebastian Dullien. “However, even then, not all real wage losses resulting from the high inflation in 2022 should be made up immediately.”
Lindner: “Break the inflation spiral”
Federal Minister of Finance Christian Lindner currently sees combating high inflation as the priority for fiscal policy. “We have to break the spiral of inflation,” said the FDP leader in Berlin. The decisive prerequisite for this is the “end of the expansive financial policy” of the past few years. In this context, Lindner again insisted on complying with the debt brake again in 2023. For the upcoming budget deliberations, this means a return to a “policy that has to deal with shortages” and a stronger prioritization of desired expenditure. “The traffic light coalition is only now being formed,” said the minister.
“We end the addiction to more and more debt and subsidies,” announced Lindner. “It’s about showing responsibility towards the generation of children and grandchildren.” High inflation is “an enormous economic risk,” he warned. Despite tight budgets, Lindner wants to implement tax cuts. On the other hand, he rejected the climate money demanded by the Greens and the SPD to relieve consumers. This was “not properly thought through,” he said. He also opposed an ecological transformation “on the drawing board”. The climate money was agreed in the coalition agreement, but without a concrete timetable.
