Gasoline rationing comes back

Hotels, gasoline and restaurants are more expensive: Is inflation coming back to Germany?

Germans are traditionally more afraid of inflation than in other countries. Because the "Great Inflation" between the First World War and November 1923 was one of the most radical monetary devaluations that a large industrial nation has ever seen.

1923 hyperinflation in collective memory

In May 1923 a kilo of bread cost 474 marks in Cologne. Two months later the price had risen to 2,200 marks, at the beginning of October it was 14 million. Another four weeks later the loaf of bread cost 5.6 billion marks. According to the tradition of their ancestors, these events are deep in the bones of the Germans. Accordingly, German consumers view the inflation rate with suspicion.
First of all: we are certainly not facing such inflation. Because at that time the state printed money around the clock with 1,800 printing machines, so they wanted to get rid of the huge war debts and reparations burdens. The hyperinflation was therefore wanted by the state.

Inflation expected to be three percent

At best, moderate inflation is expected for Germany. Inflation has already risen to 1.6 percent. That sounds like little, but in relative terms it is a lot, since the comparative value of the previous year was 0.3. This jump is apparently enough for the stock exchanges to fall into fear of inflation. The Dax temporarily lost 2.2 percent on Wednesday and briefly fell below the 15,000 point mark after reaching a record of almost 15,500 points on Tuesday. But why do share prices fall at all when inflation threatens? “The normal reaction to inflation is rising interest rates. These lead to the fact that money is more likely to be put into interest-bearing paper or investments, and shares are sold in return, ”explains Justus Haucap, professor of economics and from 2008 to 2012 chairman of the monopoly commission that advises the federal government.

Scarcity of raw materials increases inflation

The Deka fund company shares the stock exchange's assessment of the rise in inflation. "The monthly inflation rates will rise by more than three percent in the second half of the year," says Ulrich Kater, Deka's chief economist. The fact that it is higher here than in the rest of the euro zone is due to the reduction in VAT in 2020 and the return to 19 percent at the beginning of the year. The chief economist also assumes that inflation will then fall back to two percent in January. “The current inflation is driven by the shortage of many intermediate goods or raw materials such as metal or wood. The reason is that the companies have planned wrongly. They expected that the pandemic and its consequences would last longer and that their warehouses and production capacities would be shut down accordingly, ”says Kater. Now everyone around the world is surprised by the rapid recovery. That will only be caught up again in the middle of next year.

When inflation rises, interest rates rise

But what if the forecast is incorrect and inflation persists? “Then the central banks will have to raise interest rates again in 2023, which will probably result in a recession. But I only see this scenario with a probability of 20 percent, ”says Kater. Haucap does not believe in high inflation either.
Who are the victims of inflation? “In any case, the savers, whose money is being creeping into devaluation,” says economist Justus Haucap. Profiteers, on the other hand, are "indebted people, for example because they have just bought a house". However, Haucap sees no reason to worry about major inflation either. "I advise against taking out large loans just with a view to inflation, just to be able to simply repay them," says Haucap.
Another beneficiary of a possibly rising inflation rate is the German state. Just like the indebted home builder, he can repay his loans at a lower real value.

You might also be interested in

According to court ruling: Sparkasse Köln-Bonn puts fee increase on hold

Advice from lawyers: This is how you can get your life insurance money early

Rewe Pick & Go at Neumarkt: How shopping works without a checkout

Incidentally, zero inflation is not the goal of the central bankers, but rather the two percent mark in the euro zone. A certain low inflation is an advantage to keep prices moving. “It's like oil in a gearbox,” says Haucap.