No end to inflation in sight – consumers are increasingly worried

Everything is getting more expensive: This is clearly noticeable in most households.

Everything is getting more expensive: This is clearly noticeable in most households.Image: picture alliance / Frank May

Do they have to be new football boots or do the old ones still fit? Can I afford a cell phone? Or a closet for the children’s room? Questions that consumers often ask themselves because of inflation. Inflation is eating its way deeper into consumer budgets. This also increases the concerns of the people in Germany. According to a survey, many want to do without unnecessary purchases in order to cope with the rising prices.

According to data from the Federal Statistical Office, in April food and energy prices rose at an above-average rate. Juso chairwoman Jessica Rosenthal is calling for a permanent abolition of VAT on staple foods. In view of the rapid increase in inflation, the probability of a first interest rate hike in July is growing in the euro zone.

Juso chairwoman Jessica Rosenthal is calling for a permanent abolition of VAT on staple foods.

Juso chairwoman Jessica Rosenthal is calling for a permanent abolition of VAT on staple foods.Image: dpa / Kay Nietfeld

Products more expensive than they have been since reunification in 1990

According to economists, consumers will have to adjust to inflation rates of more than 7 percent in the coming months. In April, consumer prices were 7.4 percent higher than in the same month last year. The Federal Statistical Office thus confirmed an initial estimate on Wednesday.

It was the highest level since German reunification in 1990. A similarly high rate of inflation was measured in the old federal states in autumn 1981 as a result of the first Gulf War between Iraq and Iran. From March to April this year, consumer prices in Europe’s largest economy rose by 0.8 percent.

The purchasing power of consumers is falling drastically – measures have so far failed

The sharp rise in energy prices is also fueling inflation. The war in Ukraine has reinforced this trend. In addition, there are interrupted supply chains, among other things due to the corona lockdown in parts of China. In March, the annual inflation rate had already jumped to 7.3 percent.

Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro. The federal government has now put together two billion-dollar packages to relieve people.

Many Germans had to freeze in the winter months

The Juso chairwoman Rosenthal called for another package, from which young people and pensioners in particular should benefit. “For relief, we need a permanent cancellation of VAT on staple foods and an energy cost subsidy that actually reaches everyone,” said the head of the youth association SPD. “In the last few months, many people have had to see if they can afford to heat. The same people are now wondering if they have enough money to eat.”

Many Germans can hardly afford heating if nothing is done to reduce the high costs.

Many Germans can hardly afford heating if nothing is done to reduce the high costs.Online picture agency / Online picture agency/Schoening

In April, energy prices rose by 35.3 percent compared to the same month last year. The prices for light heating oil almost doubled. Consumers also had to pay significantly more for petrol (38.5 percent) and natural gas (47.5 percent). Food cost 8.6 percent more than a year earlier. Other goods also became significantly more expensive, such as vehicles (8.9 percent).

Many people are concerned about inflation – and need to save

More than four out of five people in Germany (85 percent) are worried about the high price increases. Many of them want to reduce their spending on furniture, electronics, jewelry and sporting goods to cope with rising prices, according to a representative survey by the consulting firm PwC.

PwC trading expert Christian Wulff is convinced:

“Due to the higher cost of living, many households will forgo purchases that are not absolutely necessary. This applies in particular to durable consumer goods that are not primarily used as replacements, such as furniture or certain electronics.”

For the year as a whole, economists recently expected an average inflation rate of more than 6 percent in Germany. The Bundesbank is now assuming a figure of almost 7 percent. In 2021, the average inflation rate was still 3.1 percent.

Rate hike in the summer is likely

With inflation soaring, the likelihood of a rate hike in the eurozone in July is growing. ECB President Christine Lagarde promised a rate hike in the summer. The head of the European Central Bank in Ljubljana said it could take place a few weeks after the end of the bond purchases. ECB Director Frank Elderson spoke of the possibility that interest rates could rise in July. Bundesbank President Joachim Nagel made a similar statement.

ECB boss Christine Lagarde predicts a rate hike in the summer.

ECB boss Christine Lagarde predicts a rate hike in the summer.Image: picture alliance

In April, the inflation rate in the common currency area rose to 7.5 percent, the highest level since the introduction of the euro. Inflation is thus well above the target set by the ECB. The central bank is aiming for an inflation rate of two percent in the medium term, at which it sees price stability.

Despite a slight decline, inflation in the US is still higher than in the euro area. In April, consumer prices were 8.3 percent higher than in the same month last year, according to the Department of Labor in Washington. In March, the inflation rate was 8.5 percent. The US Federal Reserve is already fighting the high inflation rate with a tighter monetary policy.

(ast/dpa-afxp)

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