Germany’s inflation will remain high over the next two years

Tejal PatelDecember 29, 2022

84 2 minutes read

Table of Contents

Germany’s inflation will remain high over the next two years

Germany’s inflation will remain high over the next two years, according to a senior government official on Saturday. As energy prices continue high, consumers should expect additional price increases in 2023 and 2024, according to the president of a committee of specialists advising the German government.

Russia’s invasion of Ukraine has exacerbated already rising food and energy prices, driving inflation in Germany to its highest level since the early 1950s, with consumer price increases of roughly 11.3% in November.

Even a proposed price restriction on gas and electricity may not be enough to keep inflation from reaching double digits, according to the Bundesbank.

“Inflation will be a concern in 2024, and only then will we perhaps see it return to 2%,” Monika Schnitzer, chair of the German Council of Economic Experts, told the Rheinische Post. “Inflation is still strong because we are witnessing second-round impacts, with firms passing on their higher costs – and some exaggerating dramatically.”

According to Schnitzer, inflation will stay high due to so-called second-round effects, in which manufacturers pass on higher costs to consumers and companies. She criticized several companies for misrepresenting their pricing increases. Her remarks contrast with a prediction released last week by the Munich-based Ifo institute, which anticipated that inflation would decline to 6.4% in 2023.

Given measurable salary increases in the chemical and metal industries, she said she was not concerned about a wage-price spiral. Workers in certain industries agreed to pay increases that will most likely be below inflation in exchange for one-time compensation payments.

She was concerned about rising power rates, and she suggested that the government investigate whether it would make sense to keep the remaining three nuclear facilities running for two or three years longer than anticipated.

“It would make sense to buy new fuel rods now to provide us more assurance next winter,” she explained.

The European Union’s largest economy had intended to phase out nuclear power by the end of this year, but given the present energy crisis, the government agreed in October to prolong the lifespans of the last three units until April. Some government officials would prefer to see their lives extended even more.

Ifo also expected that Germany’s recession will be less than originally thought, with growth decreasing by only 0.1%, compared to an earlier projection of a 0.3% contraction.