ifo Institute Expects 3 Percent Inflation for 2021 in Germany

The inflation rate measures the percentage change in the average level of consumer prices compared with the previous year. “High inflation rates can indicate either that prices are currently rising sharply or that prices fell sharply a year ago,” Wollmershäuser explains. Nevertheless, the study also shows that the inflation rate can be explained in part by an accelerated increase in prices over the course of 2021. “This is especially apparent in energy, food, and some service industries since January 2021,” Wollmershäuser says.

The study also cites reasons for a slowdown in price inflation in 2022 to between 2.0 and 2.5 percent: “At the beginning of 2022, the special factors that have been driving inflation will peter out: it will be a year since the reduction in VAT was reversed and energy prices reached their pre-crisis levels,” Wollmershäuser says. Whether other factors will drive prices more than forecast is still uncertain – for example, pent-up consumer demand following the coronavirus crisis could turn out to be greater than previously assumed. Rising prices for raw materials and intermediate products could also have an impact on the price of goods and ultimately on consumer prices if material shortages persist.