Inflation rate in Germany on the rise - causes and consequences

The inflation rate has always played a role in price trends in Germany. While the cost of food, housing etc. is rising, the purchasing power of the euro is decreasing and the burden on private households and companies is increasing.

 

The inflation rate in Germany is currently at an all-time high. The energy crisis in particular is having a major impact on consumer prices and the economic situation. In the context of the inflation rate in Germany, the federal government has adopted three extensive relief packages and a few months ago approved an increase in the minimum wage to 12 euros. We at DEKRA Arbeit also support our temporary workers and applicants by paying above-average collectively agreed wages and industry supplements in addition to minimum wages.

But what is the inflation rate in Germany, what causes inflation, what does inflation currently look like in Germany and what can we expect? We have addressed these questions in the following article.

What is the inflation rate in Germany?

The inflation rate in Germany is the percentage change in the consumer price index. The change relates to the same period in the previous year. The consumer price index measures the average monthly price development of all goods and services consumed by private households. In addition to the term inflation rate, the consumer price index is also known as the inflation rate.

To calculate inflation rates in Germany, a “shopping basket” of around 650 goods is compiled. This represents what is bought in German households. The so-called weighting scheme defines the weightings of the types of goods that are included in the inflation rate for Germany.

Basically, the inflation rate in Germany serves to measure the stability of monetary value. If the price level rises in the long term, this is referred to as inflation in Germany. The flip side of this is deflation if the price level continues to fall. A rising inflation rate in Germany always has the consequence that purchasing power falls and you receive fewer goods for the same monetary value.

What is the current inflation rate in Germany?

The inflation rate in Germany has currently risen by 8.6% compared to the same period last year and has reached an all-time high. Consumer prices for energy have risen by 24.4 % and consumer prices for food by 20.7 %.

What causes inflation?

We note that inflation in Germany has led to a loss in the value of money due to rising prices since 2021. The causes of inflation can be manifold. One reason can be a shortage of goods. A high demand for raw materials with a low supply increases the price of production, which manufacturers pass on to the end consumer by raising the price of their products. This is currently still being felt in the wake of the global pandemic. Consumer behavior changed significantly after the lockdowns. Demand for goods and merchandise increased. At the same time, companies are still dealing with procurement problems and supply bottlenecks. Demand is higher than supply, which is causing prices to rise. Added to this are the current effects of the Ukraine-Russia conflict, which has caused energy prices to skyrocket considerably.

In 2022 alone, the cost of energy products rose by around 10.4% compared to the previous year. The price increase affects both gas and electricity. With no end in sight so far, energy costs are also pushing up the inflation rate in Germany.

What are the consequences of the high inflation rate in Germany?

 

A high inflation rate in Germany always has consequences for the economy and companies. Consumers can buy less for their money due to the loss in value of the euro. Savings in the bank also lose value. This is accompanied by increased investment in tangible assets such as real estate. This in turn means that banks have less leeway for loans and financing. In the wake of a high inflation rate in Germany, companies are having to increase their prices to cover their costs. At the same time, investment behavior is declining. This sometimes leads to production cutbacks and redundancies.

To strengthen the population and workforce, the statutory minimum wage was raised to 12 euros gross per hour on October 1, 2022. The wage increase amounts to up to 22% and is intended to at least partially offset the current price increases. Around six million people will therefore have more money at their disposal. In view of the inflation rate in Germany, the federal government and many experts consider this step to be necessary and important.

In addition to the minimum wages, certain industry minimum wages in various occupational fields are also set to rise in the coming months.These are negotiated by trade unions and employers in a collective agreement. Everyone who works in this sector benefits from a sector minimum wage, even if they are not covered by a collective agreement.

The minimum wage for educational staff in continuing vocational training has risen to 17.87 euros per hour as of January 1, 2023. For educational staff with a bachelor's degree to 18.41 euros.

In the care sector, the first increase in September 2022 will be followed by another in May 2023.

Employees in the electrical trade can expect to receive 13.40 euros per hour from January 1, 2023, while painters and varnishers will receive 14.50 euros as journeymen and 12.50 euros as helpers from April 1, 2023. Of course, the minimum wages also apply to temporary work, so we at DEKRA naturally adjust our services accordingly and pay the statutory and collectively agreed minimum wages. 

According to the DGB (German Trade Union Confederation), the increase in the minimum wage should have the effect of an economic stimulus package, increase annual purchasing power and counteract the rising inflation rate in Germany.

What are the inflation forecasts for Germany?

The leading economic institutes in Germany expect the inflation rate in Germany to rise further to up to 8.8% in 2023, taking into account all current circumstances such as the war in Ukraine and rising prices in the energy sector.

Do you still have questions about the inflation rate in Germany and the minimum wage or would you like to find a suitable job with our help? Then get in touch with the experts at DEKRA Arbeit.