Strong price increases for energy and food have driven the inflation rate in Germany to its highest level for almost 50 years. Economists give consumers little hope that prices will fall again quickly. In May, consumer prices were 7.9 percent above the level of the same month last year, as calculated by the Federal Statistical Office.
The inflation rate in Europe’s largest economy thus remained above the seven percent mark for the third month in a row. The inflation rate jumped to 7.3 percent in March and 7.4 percent in April. From April to May, prices rose by 0.9 percent. The statisticians confirmed their preliminary data on Tuesday.
Inflation rates at the current level have never existed in reunified Germany. In the old federal states you have to go back to the winter of 1973/1974 to find similarly high values. At that time, energy prices had risen as a result of the first oil crisis.
Higher inflation rates reduce purchasing power. Consumers can then afford less for one euro. As a result of the Russian attack on Ukraine, energy prices had risen significantly in recent months from a high level. Russia is a major supplier of oil and gas.
However, it is not only the tense situation on the world market that is driving energy prices, but also the German CO2 tax: since the beginning of the year, 30 euros per tonne of carbon dioxide produced by the combustion of diesel, petrol, heating oil and natural gas have been due.
In May, people in Germany had to pay 38.3 percent more for energy than a year ago. Heating oil was almost twice as expensive as in May 2021. Natural gas became more expensive by more than half. The prices for fuel (41 percent) and electricity (21.5 percent) also rose significantly.
Delivery bottlenecks also ensure that prices for many goods rise. Food prices increased by 11.1 percent. This means that prices rose sharply again after 8.6 percent in April. The prices for goods as a whole rose by 13.6 percent in May compared to the same month last year. There are “price increases in almost all areas,” the statisticians determined.
The federal government is trying to relieve people, among other things, with a limited tank discount. There is no relief in sight in the short term. According to calculations by the Federal Office, wholesale sales prices, which affect consumer prices, were 22.9 percent higher in May than a year earlier.
The increase was therefore somewhat weaker than in April 2022. From April to May of this year, however, wholesale prices rose by 1.0 percent. The Bundesbank expects inflation in Germany to be 7.1 percent for the year as a whole, based on the so-called harmonized index of consumer prices (HICP). The European Central Bank uses this for its monetary policy.
In May, the HICP in Germany was 8.7 percent above the previous year’s level. The ECB is aiming for medium-term stable prices with 2 percent inflation for the currency area of the 19 countries. In view of the record high inflation, the central bank decided after a long hesitation to exit its ultra-loose monetary policy: the multi-billion dollar bond purchases will end on July 1st.
On July 21, the Governing Council of the ECB intends to raise key interest rates for the first time in eleven years, initially by 0.25 percentage points each time. “Monetary policy is called upon to reduce inflation through consistent action,” warned Bundesbank President Joachim Nagel recently.
Federal Minister of Agriculture Cem Özdemir (Greens) also expects food prices to continue to rise in Germany. “Unfortunately, a lot is yet to come,” said the minister of the Düsseldorf “Rheinische Post” (Tuesday). The food industry has long purchasing deadlines for energy. “We have to expect increases in autumn and winter because retailers now have to supply themselves with expensive energy and the price increases are passed on to customers.”
In the ZDF “Morgenmagazin” Özdemir admitted with regard to the Russian attack on Ukraine: “I cannot undo the consequences of the war as German Minister of Agriculture.” It is part of the Russian strategy to block grain exports from Ukraine in order to further exacerbate the food crisis.
“Russia’s war must end,” said the Green politician. That is why part of the strategy is to train Ukraine so that it can be successful in this war.
In the “Rheinische Post”, Özdemir called on the critics of his initiative to lower the VAT on certain food products to present alternatives. “There can be no serious dispute that the current VAT system should be fundamentally reviewed.”