German Companies Pass On Increased Costs to Customers with a Time Lag

German companies are passing on their higher purchase prices to their customers, but slowly and not in full. This is the finding of an ifo Institute survey, according to which companies have passed on just 34 percent of their purchase price increases over the past few months. They plan to raise this to 50 percent by April. “This is likely to lead to further inflationary pressure on consumer prices in the coming months,” says ifo researcher Manuel Menkhoff. The companies themselves report that weak demand, competitive pressure, and long-term contracts are holding them back from raising prices.

There are considerable differences between the segments. Manufacturing heads the list, with companies planning to pass on 68 percent of the higher purchase prices for energy, raw materials, and input materials, followed by 66 percent in construction, 53 percent in trade, and just 36 percent among service providers. In manufacturing alone, the figure ranges from 89 percent for producers of footwear and leather goods to 38 percent in beverage manufacturing.

These differences have already been observed in the past: 51 percent of the price increases were passed on in manufacturing, 38 percent in trade, 65 percent in the service sector, and 21 percent in construction.

The ifo Institute surveyed 6,500 companies from all sectors in October.