Many Companies Plan to Increase Prices
German consumers and companies should prepare for further price increases. In December, the ifo price expectations fell only slightly to 44.6 points, down from their all-time high of 44.9 points in November. For these price expectations, the ifo Institute asks companies about their plans for price increases in the next three months. “Such increases will filter down to consumer prices,” says Timo Wollmershäuser, Head of ifo Economic Forecasts. “Inflation will decline over the course of this year, but slowly. In the coming months, monthly rates will still exceed 4 percent and will approach the 2 percent mark only gradually toward the end of 2022. We now expect a rate of inflation of three and a half percent for the year as a whole.”
“Companies are passing on the increased cost of energy and of procuring intermediate products and merchandise,” Wollmershäuser says. Even if the rise in energy prices does not continue in the coming months and the stock market prices for natural gas, electricity, and crude oil remain unchanged, this action on the part of companies will ensure high inflation rates for some time to come. This is because the increase in consumer prices is always measured in comparison with the previous year; according to this, consumers will have spent on average over 10 percent more on energy. Wage costs, on the other hand, are not expected to be an additional factor driving inflation. “At present, wage negotiations do not indicate a wage-price spiral. We expect collectively agreed wages to increase by just under 2.5 percent this year and next. That would correspond to the average for the years preceding the coronavirus crisis,” Wollmershäuser says.
The very high values run through all sectors of the economy. In retail, price expectations stand at 60 points, followed by wholesale at 57 points, manufacturing at 55 points, and construction at 42 points. The lowest value, 34 points, was measured among service providers – a new record for this sector of the economy.
The balance values for price expectations indicate the percentage of companies that intend to increase prices minus the percentage of companies that intend to lower their prices. Neutral responses are disregarded. The balance was seasonally adjusted. The ifo Institute does not ask about the amount of the planned price change.
