Consumer prices in Germany continue to rise – and strongly: probably by 6.1 percent compared to the same month last year in August. This is a lower increase than in the spring or autumn of last year, when inflation was up to 10.4 percent. But it remains well above the European Central Bank’s target of two percent.
At the same time, producer prices for commercial products fell in July for the first time since November 2020, by a full six percent. These are the prices that producers charge for their commercial goods. But if manufacturers can buy their goods cheaper, then prices in stores should also fall, right?
There is no automatic link between falling producer prices and what customers end up paying in furniture stores or supermarkets. Companies do not always pass on the lower purchase prices – because they can increase their profit margins in this way, but also because there is no other way. Depending on how many further processing stages there are, the difference from one stage to the next wears off. In addition, there are additional costs on the way to the consumer, for example for the sales staff.
In addition, producer prices are currently falling on average, mainly because electricity and gas have become much cheaper (minus 19.3 percent compared to the previous year), as well as metal and wood. For consumer and capital goods, on the other hand, producer prices are currently continuing to rise. So there is no cost reduction here that companies could pass on to customers.
Consumer prices are currently rising at an above-average rate for food (plus nine percent). The producer prices of agricultural products play a role here – they are also falling. The latest figures are from June, when prices fell by 11.7 percent compared to the same month last year.
But here, too, the difference between consumer and producer prices can be explained by a more precise breakdown: On average, agricultural products are becoming more expensive mainly because grain prices have fallen massively (minus 38.5 percent compared to the same month last year). Producer prices for fruit and vegetables, on the other hand, rose sharply. In June 2023, growers sold cauliflower 62.2 percent more expensive than in June 2022, strawberries cost 30.3 percent more. This also affects the prices in the supermarket.
One last point why inflation is not going down even though producer prices are falling: the prices from the previous year are distorted because the federal government last year mitigated inflation with measures such as the 9-euro ticket or the fuel discount. In the autumn months, when the measures expired, the jump in prices was extreme. This could have a positive effect on inflation figures this year: compared to the prices that applied in autumn 2022, the values in autumn 2023 will probably not rise as much.
“The disappointing August figures should not be overstated,” says Dekabank chief economist Ulrich Kater to the German press agency. He believes that producer prices will have an effect in the medium term: “This easing price pressure will also affect consumer prices from September.”
