Inflation in 2021 at its highest level since 1993

Status: 06.01.2022 2:45 p.m.

Fueled by higher energy prices, the inflation rate in Germany rose to 3.1 percent in 2021 – the highest level since 1993. In December, prices rose by a further 5.3 percent.

Strong increases in energy prices, delivery bottlenecks and the withdrawal of the temporary VAT cut have pushed inflation to its highest level in 28 years in 2021. According to an initial estimate by the Federal Statistical Office, the rate of price increase last year was 3.1 percent. The authority had last measured a stronger increase in consumer prices on an annual average in 1993 at 4.5 percent at the time. In the first Corona year 2020, the annual rate of increase was 0.5 percent.

Monthly inflation rate continued to rise in December

In December alone, inflation in Germany rose by 5.3 percent compared to the same month last year, according to the Federal Statistical Office. A higher rate of inflation was last calculated in June 1992 at 5.8 percent. Analysts were surprised by the renewed rise in inflation in Germany. They had expected a slight decrease in the inflation rate to 5.1 percent.

“The underlying price pressure remained surprisingly high in December,” said Jörg Krämer, chief economist at Commerzbank. Contrary to expectations, the inflation rate did not fall, but continued to rise – although energy was cheaper compared to the previous month. Thomas Gitzel, chief economist at VP Bank, was also astonished: “It was to be assumed that things would go into reverse in the last month of the year.” But it was, among other things, higher food prices that thwart the decline in the inflation rate.

In November, the monthly measured inflation rate for the first time since the reunification boom in the early 1990s exceeded the mark of 5.0 percent at 5.2 percent. With the European calculation method (HICP), however, there was a decline in the inflation rate. Here the Federal Office reports an annual rate of 5.7 percent for December, after 6.0 percent in November.

Subsidy for recipients of housing benefit in planning

Higher inflation weakens the purchasing power of consumers because they can then buy less for one euro than before. According to economists, it hits poorer households particularly hard. Because they have to spend a large part of their income on essential goods such as housing or food. In the third quarter of this year, the increases in gross wages were completely eroded by high inflation.

The Federal Ministry of Construction is currently working to ensure that recipients of housing allowance receive an increased allowance for heating costs in the summer – in good time for ancillary costs settlement with the costs for the winter. Rising inflation rates are also bitter for savers. As a result, the bottom line is that savings with low interest rates lose their value. The German state is also losing billions because it has to pay significantly more for the construction of roads and buildings, for example.

Increased energy prices one of the reasons

Inflation in Europe’s largest economy was fueled last year primarily by the rapid rise in energy prices in the wake of the global economic recovery after the Corona crisis in 2020. Household energy rose by 18.3 percent within a year. The rise in food prices was also above average. The year-on-year increase was 6.0 percent.

In addition, there were material shortages and delivery bottlenecks as well as the introduction of the CO2 levy at the beginning of 2021 of 25 euros per ton of carbon dioxide that is produced when diesel, petrol, heating oil and natural gas are burned. Since the beginning of the current year, 30 euros per ton are due.

At the same time, the withdrawal of the temporary VAT cut had an impact: the higher tax rates have been in effect again since January 2021, so goods and services have tended to be more expensive year-on-year. For January, most experts finally expect a decline in the rate of inflation, as the prices will then no longer be compared with those from the second half of 2020 than the regular VAT rate temporarily at 16 percent instead of 19 percent and the reduced VAT rate at five instead of seven Percent lay.

Experts at odds for 2022

“Energy prices also rose rapidly in the first half of 2021, which noticeably increases the basis of comparison for the upcoming inflation calculation,” added Gitzel. Therefore, January should mark the beginning of a falling inflation trend. In the second half of 2022, the inflation rate of two percent desired by the ECB could finally be targeted again. According to Gitzel, the central bank should therefore take the renewed rise in the inflation rate in December calmly.

DekaBank expert Kristian Tödtmann, on the other hand, refers to the fact that natural gas prices have now risen sharply again. “That comes in full force in January.” The Ifo Institute does not expect inflation to normalize until 2023. According to the Munich economists, consumer prices are likely to rise to 3.3 percent in the current year.

“The inflation risks are clearly pointing upwards – not only in Germany, but also in the euro area,” said Commerzbank expert Krämer. It is time for the ECB to take its foot off the gas. Michel Heise, chief economist at HQ Trust, sees it similarly: “In view of these figures, a change in monetary policy is becoming more urgent.” The ECB stuck to its ultra-loose monetary policy in December.

Marcus Pfeiffer, HR, on the rising inflation rate

tagesschau24 09:00 a.m., 6.1.2022

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