01/17/2023 12:10 (act. 01/17/2023 12:10)
Last year people in Germany experienced the biggest price shock since the founding of the Federal Republic. Consumer prices rose 7.9% on average over the year. “The historically high annual inflation rate was mainly driven by the extreme increases in energy and food prices since the beginning of the war in Ukraine,” explained Ruth Brand, president of the Federal Statistical Office on Tuesday.
Inflation weakened towards the end of the year. However, economists expect the pace to pick up again in January and February. A complete easing is not expected throughout 2023.
German Economy Minister Robert Habeck expects an inflation rate below five percent by the end of this year. Calculated over the entire year, the inflation rate will be “much higher”, the green politician told Welt television station on the sidelines of the World Economic Forum in Davos.
Last year, inflation reached the highest level since the founding of the Federal Republic. However, the calculation method has changed over time. In 2021, consumer prices increased by 3.1% year-on-year. Statisticians confirmed an initial estimate for the full year and December 2022.
In addition to the sharp increase in energy prices as a result of Russia’s war of aggression in Ukraine, delivery bottlenecks have also increased inflation. Even if the price increases “were not fully passed on to consumers, energy and food in particular became noticeably more expensive for them,” Brandt explained.
Consumers had to pay 39.1% more for home energy last year than the year before. Light heating oil (up 87 percent) and natural gas (up 64.8 percent) rose in price particularly significantly. Electricity prices rose 20.1 percent. A visit to the gas station cost an average of 26.8% more than in 2021.
Food prices rose 13.4% year-on-year. Edible fats and oils (up 36.2 percent) as well as dairy products and eggs (up 19.7 percent) rose at an above-average rate.
Higher inflation rates reduce the purchasing power of consumers, who may pay less for a euro. People’s financial freedom is diminishing and increases in income are being eaten up by inflation. According to studies, people with low incomes are particularly affected. The biggest price drivers – household energy and groceries – account for a significantly larger share of their total shopping basket than for the rich.
Government measures such as the 9 euro ticket limited to three months in the summer and the punctual assumption of the down payment for gas and district heating customers in December by the State provided some relief throughout the year. As a result, inflation weakened towards the end of the year from a high level. Consumer prices rose 8.6 percent compared with the same month last year. In November, the inflation rate was still 10%. The record level of 10.4% was reached in October. Compared to November, the consumer price index fell by 0.8% in December.
Economists give the German people little hope for a significant drop in inflation this year. Sebastian Dullien, scientific director of the Institute for Macroeconomics and Business Cycle Research (IMK) at the Hans Böckler Foundation, believes that inflation has peaked. However, many economists expect an average inflation rate of over 6% in 2023. Initially, inflation is expected to pick up again after the end of December’s one-off easing. As of March, the brake on gas and electricity prices may once again dampen inflation.
The European Central Bank (ECB) is battling record inflation in the eurozone as interest rates rise and is not yet at the end of its mission, as ECB President Christine Lagarde made clear in mid-December: “We have to go way too far.”
Currency Watchers aim for medium-term price stability with a two percent inflation rate for the common currency zone. In Germany, the HICP index, which determines the central bank’s monetary policy, averaged 8.7 percent above the previous year’s level.