Friday 13th August 2021
“No sustainable increase”
Federal government sees inflation relaxed
At the moment, the rate of inflation is 3.8 percent, the highest it has been in almost 30 years, and wholesale prices have risen sharply since 1974. Nevertheless, the Federal Ministry of Economics sees “no signs of a wage-price spiral” that could lead to permanently high inflation .
The federal government does not expect long-term high inflation in Germany. “From today’s perspective, a sustained increase in the rate of inflation is not to be expected,” says the now published monthly report by the Federal Ministry of Economics. “Because there are currently no signs of a wage-price spiral that could lead to permanently high inflation.”
Such a spiral comes into play when wages are also raised sharply because of the threat of severe losses in purchasing power and companies react to this with new price increases in order to maintain their profit margins.
At 3.8 percent, the rate of inflation is currently higher than it has been since 1993. Economists assume that it will crack the four percent mark in the coming months. This is supported by the fact that sales prices in German wholesaling rose more sharply in July than they have been for decades. They were 11.3 percent higher than a year earlier, according to the Federal Statistical Office. The last time there was a stronger increase was in October 1974 with 13.2 percent during the first oil crisis.
The development in wholesaling is an indicator of future inflation trends, as it is the hinge between manufacturers and end customers. “The rate of inflation skyrocketed from June to July,” said the ministry. “The decisive factor was a base effect due to the temporary reduction in sales tax rates a year earlier.”
The inflation rate is expected to decrease in 2022
The inflation rate had risen significantly since the beginning of the year in view of other special factors such as higher raw material prices or CO2 pricing. “At the beginning of 2022, however, the inflation rate should decrease again significantly after the special effects have expired,” says the monthly report. It also refers to a two-part economy in Germany.
“While the service sectors continue to benefit from the easing of the pandemic containment measures, the industrial economy is being burdened by existing supply bottlenecks,” said the ministry. “However, the positive basic dynamics of the overall economy persist and drive the economic recovery.”
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