In October, German inflation hit another record high. At the same time, the latest data shows that gross domestic product rose by 0.3 percent in the third quarter instead of shrinking as feared.
Above all, private consumption supported economic growth in the third quarter.
The inflation rate in Germany is expected to be 10.4 percent in October 2022. This was announced by the Federal Statistical Office (Destatis) on Friday in a first estimate. Inflation, measured by the change in the consumer price index compared to the same month last year, rose again slightly compared to September, when it had jumped to 10 percent. In reunified Germany such high values have never been recorded; In the autumn of 1951, double-digit inflation rates were measured for the last time in what was formerly West Germany.
Main cause energy prices
Since the beginning of the war in Ukraine, energy prices in particular have risen sharply, which is also driving up the overall index. In October, energy prices were 43 percent higher than in the same month last year. But food prices have also risen at an above-average rate of 20.3 percent.
According to Destatis, there are also price-driving effects from supply chains that are still interrupted as a result of the corona pandemic. The statisticians continue to write that the reduction in VAT for natural gas deliveries and district heating from 19 to 7 percent should have had a price-dampening effect in October.
Measured against the harmonized consumer price index of the EU, which uses a different basket and which the European Central Bank (ECB) also uses for its analyses, the price increase in Germany in October was as much as 11.6 percent.
No quick relaxation
Most economists do not expect a quick relaxation. According to one Commerzbank comments “There should be a ten before the decimal point in the inflation rate for the next few months.” The author, Marco Wagner, justifies this by saying that the massive increase in energy prices has not yet fully reached private households and many companies have not yet fully passed on their higher energy costs to their customers. Only in the course of the next year – also due to state intervention in the prices of electricity and natural gas – should the momentum in energy prices slow down noticeably and the inflation rate fall, he stated.
«The wave of inflation has not yet broken», also emphasized Timo Wollmershäuser, head of economic activity at the Ifo Institute, even before the Destatis release. The reason for his assessment was a survey by the institute, which asked companies about their price increase plans.
supportive consumption
Despite the rapidly rising prices, consumer sentiment remained surprisingly good, at least between July and September. This puts a first estimate of economic output close, which Destatis published a few hours before the inflation data. Many economists had expected gross domestic product (GDP) to contract from the third quarter of 2022 amid high energy prices, falling consumer purchasing power and ongoing supply chain problems.
But things have turned out better than feared for the time being: According to Destatis, GDP rose by 0.3 percent in the third quarter compared to the previous quarter, adjusted for price, seasonal and calendar effects. In the second quarter, it had increased by 0.1 percent.
According to Destatis, growth in the quarter under review was mainly driven by private consumer spending. The German economy is thus continuing to assert itself “despite difficult global economic conditions with the ongoing corona pandemic, disrupted supply chains, rising prices and the war in Ukraine”. Compared to the same period in the previous year, GDP grew by 1.1 percent in real terms and by 1.2 percent in real terms and adjusted for prices and working days.
In addition, GDP was above the pre-crisis level for the first time since the beginning of the Corona crisis: adjusted for price, seasonal and calendar effects, economic output in the third quarter was 0.2 percent higher than in the final quarter of 2019. Destatis pointed out, however, that these results were due to the ongoing Corona crisis and the consequences of the war in Ukraine are associated with greater uncertainties than usual.
Recession is still looming
According to many economists, there is still a risk of a recession in the winter months. The good result in the third quarter could have been influenced by temporary effects such as the need to catch up after many corona restrictions were lifted and temporary relief from the fuel discount and the nine-euro ticket.
Carsten Brzeski, chief economist at ING, emphasized in a comment, the surprising growth in the third quarter does not mean that the country will avoid a recession. All leading indicators pointed to a further weakening of the economy. Even though the rain has raised river levels and the warm October weather has pushed back the start of the heating season, the gradual slide into recession continues. The government’s latest support package is “too late too little” to avert a winter recession if it is not implemented retrospectively. It can only mitigate them.
The Federal Government expects in its Autumn projection presented in mid-Octoberthat GDP will fall by 0.4 percent over the next year. Inflation is then likely to drop from an annual average of 8 percent this year to 7 percent next year, also thanks to the planned gas and electricity price brakes.
You can contact the Berlin business correspondent René Höltschi Twitter follow.