German Companies in Trade, Construction, and Agriculture Used Inflation to Increase Profits

In the fourth quarter of 2022, some German companies continued to increase their sales prices more than was indicated by the development of purchase prices. “These companies have taken advantage of the situation to increase their profits sharply. This is especially true of companies in the trade, hospitality, and transport sectors, as well as in the construction industry. In agriculture and forestry, on the other hand, which were among the inflation winners in the summer, rising costs have recently had a stronger impact,” says Joachim Ragnitz, Managing Director of ifo Dresden. Overall, the trend had slowed in the fourth quarter.

Ragnitz points out that gross operating surpluses – corporate profits plus depreciation and other net taxes on production – have risen sharply in almost all major sectors of the economy.

“Even though the rate remains high, the momentum of price increases has lessened somewhat compared to Q3. For consumers, this gives hope that inflation has passed its peak,” Ragnitz continues.

He adds that the only remedy for excessive price increases is more competition. The government could help reduce inflation by foregoing broad-based relief for the benefit of all households and limiting it to particularly poor households. If, however, the unions were to prevail with their high wage demands, there would be a risk of a renewed surge in inflation.