Inputs and Profits Drove German Inflation in 2022

In 2022, inflation in Germany was attributable mainly to higher input costs. Price increases for intermediate products, energy, and a large number of raw materials explain 5.7 percentage points of the 8.3% rise in the price of consumer goods produced in Germany. The second most important price driver, contributing 1.4 percentage points to inflation, was increased profits. “Some companies were able to expand their profit margins last year due to strong demand in many consumer-driven sectors,” says Timo Wollmershäuser, Head of Forecasts at ifo. Rising wages, meanwhile, contributed only 0.6 percentage points to inflation. “A wage-price spiral has so far failed to materialize,” Wollmershäuser adds.

Prices were driven higher by more expensive intermediate products, especially in agriculture (14.0 percentage points of the 34.2% inflation), manufacturing (12.4 percentage points of 13.9%), construction (7.4 percentage points of 16.2%), as well as in trade, transportation, and hospitality (7.0 percentage points of 11.3%). This effect was least pronounced in those industries with the lowest levels of inputs, including real estate (1.3 percentage points of the 2.8% inflation), public services (1.6 percentage points of 4.2%), and other services (1.5 percentage points of 3.6%).

“In agriculture, rising profits were the biggest factor in higher prices, contributing 10.1 percentage points to inflation,” Wollmershäuser adds. Rising profits contributed 6.5 percentage points to inflation in construction, 3.2 percentage points in real estate, and 2.6 percentage points in trade, transport, and hospitality. However, profits were down in some sectors of the economy. This slowed inflation by 3.0 percentage points in other services, by 1.9 percentage points in information and communication, and by 1.0 percentage point in business services.