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Global Economy

Ifo Institute predicts: Many companies are planning price increases – what that means for consumers

According to the Ifo Institute, German consumers and companies must prepare for further price increases. The index of Munich economic researchers for price expectations fell only slightly in December to 44.6 points, as the institute announced on Wednesday.

In November they had reached a record value of 44.9 points. The survey values ​​dragged through all sectors of the economy. “This will have an impact on consumer prices,” said economics expert Timo Wollmershäuser. “Inflation will decline only slowly over the course of this year.”

For the coming months, the institute expects inflation rates to be above 4 percent and gradually approach the 2 percent mark towards the end of the year. For 2022 as a whole, the Ifo is now expecting an inflation rate of around 3.5 percent.

Inflation rate increased again in December 2021

In December 2021, the German inflation rate had climbed to 5.3 percent compared to the same month last year, the highest level in almost 30 years. Higher inflation weakens the purchasing power of consumers because they can then buy less for one euro than before.

After the further surge in prices in December, inflation climbed to 3.1 percent on an annual average, according to the Federal Statistical Office. The Wiesbaden authority thus confirmed an initial estimate on Wednesday. A higher rate was last measured in 1993 at 4.5 percent. In the Corona crisis year 2020, annual inflation was 0.5 percent.

According to Ifo, companies pass on the increased costs for energy and for the procurement of preliminary products and merchandise. Even if the rise in energy prices does not continue in the coming months and the prices for natural gas, electricity and crude oil remain unchanged, this will ensure high inflation rates for a while.

Consumers have to spend 10 percent more on energy than in the previous year

The researchers pointed out that the increase in consumer prices is measured compared to the previous year. Consumers would have to spend an average of 10 percent more on energy this year.

Wage costs should not be an additional driver of inflation. “The wage negotiations so far do not indicate any wage-price spiral. We expect collective wages to increase by almost two and a half percent this year and next,” said Wollmershäuser. That would be as strong as the average of the years before the corona crisis.

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