German Companies’ Price Plans Set New Record
The ifo price expectations have reached a new record level. In April, they stood at 62 points, their highest level since 1991, up from 55 points in March. This suggests that more and more companies are planning to raise their prices over the next three months. The ifo price expectations were particularly high in wholesale at 79.3 points, followed by retail at 75.4 points and manufacturing at 73.1 points. Bringing up the rear were construction at 64.2 points followed by the service sector at 51.5 points. “Inflation in Germany is thus likely to remain above 7 percent in the coming months,” says Timo Wollmershäuser, Head of Forecasts at ifo.
These sharp price increases are driven mainly by higher costs for procuring energy, raw materials, other intermediate products, and merchandise. “However, in our most recent survey in April, companies indicated that they are unable to fully pass on these costs to their customers and are reducing their profit margins accordingly,” Wollmershäuser adds. “Pass-through is particularly high in wholesale trade at an average of 57.7 percent, followed by manufacturing at 51.4 percent. Retail, construction, and service providers can pass on only a small portion of the cost increases – 35.3 percent, 25.2 percent, and 23.8 percent, respectively.”
The points for the ifo price expectations indicate the percentage of companies that intend to increase prices on balance. The balance is obtained by subtracting the percentage of companies that want to lower their prices from the percentage of those that want to raise their prices. If all the companies surveyed intended to increase their prices, the balance would be plus 100 points. If they all wanted to lower their prices, it would be minus 100. The balance was seasonally adjusted. The ifo Institute does not ask about the amount of the planned price change.
