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Global Economy

Prices are rising rapidly – who pays the bill?

It’s back: At 5.3 percent, the inflation rate in Germany in December (compared to the previous year) was higher than it had been since 1992. After years of bobbing prices, the annual inflation rate has been accelerating significantly for months. In 2021 as a whole, goods and services became more expensive by an average of 3.1 percent.

According to an analysis by the institute for macroeconomics and business cycle research (IMK, IMK INFLATIONSMONITOR), which is close to the trade unions, inflation is hitting families and couples with middle incomes (couples with or without 2 children, €3,600-5,000) the hardest.

The IMK has broken down the price increase rate for a total of eight different household types. Result: In December 2021, some paid 4.4 percent more than a year ago for their average shopping basket, others 5.5 percent. The main difference is the sharp rise in oil prices. In the past 12 months fuel and lubricants have increased in price by 33.6% and heating oil by 40%. Crude oil had become almost 50 percent more expensive between December 2020 and 2021.

According to the IMK, households that use cars as their main means of transport and heat their living space with heating oil feel the current inflation more than households that heat with electricity or gas and primarily travel by train or bicycle. That is why single people with low earnings (less than €900) get off best with a rate of 4.4 percent in December – households affected by poverty can only afford the goods, which are currently particularly expensive, to a limited extent or not at all , such as fuels and lubricants. However, “the inflation burden for these households is particularly high, since food and household energy product groups, which are difficult to substitute, are increasing in price at an above-average rate, so that consumption in these areas may have to be restricted,” according to the IMK – these households spend 2.5 times as much of their income on food and non-alcoholic beverages (16.5 to 6.4%) as single people with an income of more than €5,000.

With annual inflation of 5.4 or 4.7 percent, high earners (couple, 2 children or single people with more than €5,000) could rather avoid the price drivers – for example with shorter distances to work or to school for the children or more up-to-date heating systems. But they have other worries:

Assets such as stocks, bonds, gold and real estate are not included in the Destatis basket. According to Destatis (Dashboard Germany), for example, condominiums in major cities were 82.7 percent more expensive in 2021 (3rd quarter) than at the end of 2015.


How it goes on?

Europe’s currency watchdogs continue to expect falling inflation rates in the current year. However, the outlook is “afflicted with great uncertainty”, according to the President of the European Central Bank (ECB), Christine Lagarde, at an online event of the Davos World Economic Forum. So far, the ECB does not see a dangerous wage-price spiral that could drive inflation up permanently, “On the contrary: we assume that energy prices will stabilize over the course of 2022 (…) and then will inflation rates are gradually coming down,” Lagarde said. The ECB President had repeatedly rejected an imminent interest rate hike in the euro area – annual inflation in December 2021 5.0 percent, higher than at any time since the introduction of the euro.

The central bank is aiming for a stable price level with an annual inflation rate of 2 percent in the common currency area. Critics accuse the ECB of fueling inflation with its ultra-loose monetary policy, including bond purchases worth billions.

see below with dpa

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