Friday , 19 July 2024
Home Global Economy Two-digit inflation rates possible
Global Economy

Two-digit inflation rates possible

The Institute of German Economics (IW) expects serious consequences for the German economy as a result of gas prices continuing to rise. In a study published today, the IW examines the effects of energy prices on the economy and the labor market. The research team simulates a 50 percent increase in the gas price in the third quarter compared to the second quarter and a doubling of the price.

The authors run through various scenarios for rising energy prices – starting from a high starting point. The gas price alone has already quintupled on average between 2020 and 2021. However, the institute emphasizes that these are not forecasts, but rather possible developments.

Inflation increase of four percentage points

The results of the simulated developments are "dark" prospects, warned the IW research team. If gas prices rise by 50 percent, the inflation rate is likely to rise by 0.9 percentage points this year and by 1.3 percentage points next year. If gas prices doubled, which is currently a "realistic" scenario, inflation would rise by a point this year and nearly four percentage points next year.

Inflation was last seen at 7.5 percent in July, fueled by high energy prices, which jumped over 35 percent year-on-year. Food became more expensive by almost 15 percent. At the same time, inflation was slowed down by government measures such as the nine-euro ticket.

Consequences for the labor market

According to IW calculations, if gas prices doubled, 30,000 people could lose their jobs this year, which corresponds to an increase in the unemployment rate of 0.1 percent. In the coming year, this scenario could already affect 307,000 people.

The IW also calculated the consequences for gross domestic product if gas prices doubled in the third quarter. Then the German economy could still shrink by 0.2 percent this year and then collapse by two percent in the coming year. This corresponds to a loss of 70 billion euros.

Since people would have less money at their disposal, they would also buy significantly less: private consumption would be 1.1 percent below the baseline scenario. The companies, in turn, would have less money left for investments. These could then fall by 0.4 percent this year and by 3.1 percent next year.

Loss of production in case of a delivery stop

The IW points out that the effects of production losses in the event of a stop in gas deliveries have not yet been taken into account in the calculations. "That would trigger additional high price shocks in the value chains," explained study author Thomas Obst. Many experts are still expecting an upswing in the coming year: "But it's possible that nothing will come of it."

Normalization would not return until 2024. "Normalization does not mean a return to the pre-war level," emphasized Obst. He expects a complete restructuring of the energy infrastructure, for example through the construction of terminals for importing liquefied natural gas (LNG). "That costs money and time, especially since liquid gas is more expensive than natural gas." Normalization, i.e. a stable state again, means in this case: "The uncertainty would subside again, we would know again where we get our energy from and assume that it will stay that way."

Irrespective of this, consumers and producers would have to be prepared for persistently high prices, the authors of the study write. "The relief packages that have been decided so far can only partially compensate for the additional burdens that are to be expected."

Job vacancies at all-time high

The Institute for Labor Market and Vocational Research (IAB) meanwhile reported a new all-time high of vacancies today – the number for the period from April to June was 1.93 million. That was eleven percent more than in the first quarter, the institute announced in Nuremberg. If you use the same period of the previous year, the number of vacancies even rose by 66 percent

The IAB nevertheless pointed out the danger of a gas stop. There are "serious risks for the labor market in the near future, for example with regard to a possible stop in gas supplies from Russia".

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Articles

Global Economy

Spotlight on 2023: S&P 500 and the Significance of the 4400 Level

In our past exploration of the financial landscape of 2023, we delved...

Global Economy

AI and Data Analytics Drive Efficiency in Money Laundering Detection

BIS Innovation Hub Turns to Tech for Money Laundering Detection The BIS...

Global Economy

Russell 2000 Gains Momentum as Tech Stocks Outperform Value

Tech stocks have dominated the equity markets in recent months, surpassing value...

Global Economy

Crypto Exchange Bybit Announces Exit from Canadian Market Amid Regulatory Changes

Regulatory Shifts Prompt Bybit's Strategic Withdrawal from Canadian Crypto Market