By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, October 16, 2022

German consumer price index, September 2022
+10.0% on the same month a year earlier (provisional result confirmed)
+1.9% on the previous month (provisional result confirmed)

German harmonised index of consumer prices, September 2022
+10.9% on the same month a year earlier (provisional result confirmed)
+2.2% on the previous month (provisional result confirmed)

The inflation rate in Germany, measured as the year-on-year change in the consumer price index (CPI), crossed +10.0% in September 2022. The rate was +7.9% in August 2022 and then surged to this high, staying above 7% for seven months. “At 10%, the inflation rate has reached an all-time high ” says Dr. Georg Thiel, President of the Federal Statistical Office (Destatis).

This is Germany’s highest inflation rate since 1951.

The official said that “enormous price rises for energy products still are the main reason for the high inflation. But we also see price increases for many other goods, especially food. The end of both the fuel discount period and the 9-euro ticket availability also accelerated the price rises in September 2022. These temporary measures of the second relief package had a downward effect on overall inflation from June to August 2022.“

The German Federal Statistical Office (Destatis) also reports that in September 2022 consumer prices increased markedly by 1.9% compared with August 2022.

In addition, the selling prices in wholesale trade in the German market were 19.9% higher in September 2022 than in September 2021. The annual rates of change in August 2022 and in July 2022 had been +18.9% and +19.5%, respectively. From August 2022 to September 2022 the index rose by 1.6%, reported the Federal Statistical Office (Destatis).

The high annual rate of change for wholesale prices mainly derives from increased prices for raw materials and intermediate products. The largest impact on the annual rate of change in September 2022 had the price increase in wholesale trade with mineral oil products (+61.9%). The high price increase in wholesale trade with solid fuels (+111.9%), as well as grain, unmanufactured tobacco, seeds etc. (+30.8%) also contributed to the high rate of change in September 2022.

In view of the high energy prices, many German companies want to pass on the higher costs to their customers. Accordingly, all food retailers are planning price increases. Of course, this contains social explosives, because household incomes are rising far lower than inflation. German workers can cope with the current path of inflation.

The German government had forecast an average inflation rate of 8.0 percent for 2022, which is expected to fall to 7.0 percent in 2023. Without the planned price brakes for electricity and gas, it would be significantly more next year, as Federal Minister of Climate and Economics Robert Habeck (Greens) acknowledged. For 2024, the German government anticipates annual inflation at 2.4 percent. When presenting the government forecast on Wednesday, Robert Habeck referred to the rising key interest rates in Europe : “That will certainly work.”

However, Robert Habeck and his party, the Greens, have directly contributed to the current inflation in energy prices, irrationally fighting agaisnt nuclear power plant in Germany. On August 21, Robert Habeck ruled out on Sunday extending the lifespan of the country’s three remaining nuclear power plants in order to save gas, saying it would save at most 2 percent of gas use.

End of relief measures accelerating price rise

In addition to the rising prices of all energy products due to a combination of factors (the energy policy of Germany carried out in the 2010’s, the war in Ukraine, the closure and destruction of the NordStream pipelines) delivery bottlenecks and significant price increases at upstream stages in the economic process had an impact on the inflation rate in Germany. The prices of other goods and services also went up as a consequence, among them again many food products. This level of inflation puts pressure on retail sales. German workers cannnot cope with this level of inflation. In June retail sales unexpectedly fell by 1.6% compared to the previous month, according to preliminary data from the country’s Federal Statistical Agency (Destatis).

Overall inflation accelerated in September 2022 also because two temporary measures of the second relief package ended, the fuel discount and the 9-euro ticket. The dampening effect of the relief measures on the consumer price index had been estimated at roughly one percentage point by the Federal Statistical Office when the relief measures took effect in June 2022. Higher prices of motor fuels and tickets for public regional and short-distance passenger transport in September 2022 showed the end of the relief measures in the transport sector. The increase of transport prices in September 2022 from the same month a year earlier amounted to +14.0%, after +3.7% in August 2022 (July: +5.4%; June: +8.3%).The figure for May 2022 had been +16.3%, which was before the relief measures took effect.

Prices of energy products up 43.9% year on year

Energy product prices were 43.9% higher in September 2022 than in the same month a year earlier (August 2022: +35.6%). There was a particularly large price increase for household energy (+51.8%). Heating oil prices more than doubled year on year (+108.4%) and natural gas prices rose by +95.1%. Electricity prices increased by 21.0%; the abolishment of the EEG surcharge effective as of July 2022 reduced the price rise only slightly.Motor fuel prices increased by +30.5% in September 2022, after having risen by +16.5% in August 2022 (July 2022: +23.0%; June 2022: +33.2%). The increase in motor fuel prices had been +41.0% in May 2022, before the fuel discount took effect. The end of the period in which a lower mineral-oil tax was charged was presumably only one reason for the large increase in motor fuel prices. The high prices of energy products are due, in particular, to the large increases of international purchase prices.

18.7% increase in food prices year on year

Food prices rose 18.7% in September 2022 compared with the same month a year earlier and thus more than overall prices. Prices have increased gradually since the beginning of the year (August: +16.6%). Higher prices were seen in all food groups also in September 2022. Prices were up considerably for edible fats and oils (+49.0%) and for dairy products and eggs (+29.1%). Consumers had to pay notably higher prices also for meat and meat products (+19.5%) and for bread and cereals (+18.5%).

Inflation rate excluding energy and food at +4.6%

Excluding energy prices, the inflation rate stood at +6.0% in September 2022. The extent to which food prices currently affect the overall rate of price increase is shown by the inflation rate when energy and food are excluded. It was much lower (+4.6%), not even half the overall inflation rate.

Prices of goods rose 17.2% on September 2021

The prices of goods (total) were up 17.2% in September 2022 on the same month of the previous year. The prices of non-durable consumer goods, which include also food and energy, increased notably by 23.3%. The prices of consumer durables rose by 5.9% (including furniture and lighting equipment: +9.1%; vehicles: +9.0%).

Service prices up by only 3.6% compared with a year earlier

The prices of services (total) increased by 3.6% in September 2022 on the same month of the previous year. Net rents exclusive of heating expenses, which have much impact as they account for a large part of household final consumption expenditure, rose by 1.8%. Larger price increases were observed for the maintenance and repair of dwellings and residential buildings (+13.9%), package holidays (+10.4%) and for catering services in restaurants, cafés and the like (+8.5%). In addition, the price reductions in public regional and short-distance passenger transport ended as the 9-euro ticket was no longer available. The prices of rail tickets in short-distance transport (+2.4%) and combined tickets for rail, bus and the like (+1.9%) were up again year on year in September 2022. In contrast, lower prices had to be paid for only a few services, for example telecommunications services(-1.5%) and services of social facilities (-1.4%).

The month-on-month comparison shows the sharp price rise caused by the abolishment of the 9-euro ticket and the fuel discount

Compared with August 2022, the consumer price index rose markedly by 1.9% in September 2022. Sharp rises in ticket prices were recorded for short-distance rail transport (+82.5%) and for combined passenger transport (+175.3%) as a result of the 9-euro ticket ending. Energy prices as a whole rose by 6.9%. Price rises were observed in particular for motor fuels (+12.5%), which was influenced by the fuel discount ending.As regards household energy, especially gas prices were up (+6.7%). In addition, households paid more for food (+1.8%, including vegetables: +3.9%; dairy products: +2.2%). There were also seasonal price fluctuations in September 2022. Higher prices of clothing (+5.7%) were contrasted by lower prices of package holidays (-10.9%).

Methodological notes:

The German consumer price index (CPI) and the harmonised index of consumer prices (HICP) differ in coverage and methodology. In contrast to the HICP, the Germann CPI includes also household expenditure on owner-occupied housing, games of chance and broadcasting fees. In addition, the HICP product weights are updated annually. As the weight of housing is much smaller in the HICP basket, price increases in other product groups have a larger impact on the HICP than on the CPI. These differences (coverage, methodology and weighting) explain the in part considerable differences between the CPI and the HICP for Germany.

Explanatory notes and a methodological paper which discusses this issue are provided on the website of the German Federal Statistical Office.

Inflation Calculator informs about personal rate of inflation:

German consumer can use the Personal Inflation Calculator of the German Federal Statistical Office to adapt their monthly consumption expenditure on individual product groups according to their own consumption patterns and to calculate their personal inflation rate. In addition, the Price Kaleidoscope gives an overview of the price trend and the weights of various products.

Read also : How to invest in gold

On October 14 gold prices hit a high of $ 1,672.5 per troy ounce. This was $ 1,676 per troy ounce on September 30. Gold prices were navigating between $ 1,614 and $ 1,626 per troy ounce on September 28. On the past 30 days, gold prices are down by 3.05%, as the U.S. dollar register gains thanks to the rate hikes of the U.S. Federal Reserve. The Fed is conducting the most aggressive cycle of raising interest rates in recent times. This year, the U.S. central bank has added nearly 250 basis points in the fight against inflation, and many asset classes, from stocks to bonds to bitcoin, have been in serious trouble.

But this rising phase of the dollar could end very quickly, once the housing and stock markets crash because of the very high level of indebtedness of households, companies, private banks and States.

So far this year, gold prices have risen by about 13% in British pounds sterling. That’s almost a cosmic profit compared to the stock and bond markets. But against the dollar, gold’s yield fell by about 8%. How long will the dollar remain so strong? That is the question we must ask ourselves now. 

However, the U.S. and European sanctions against Russian gold put pressure on the gold market. There is less gold available to European and U.S. investors. This shortage support the current gold price, in spite of the rising U.S. dollar. This explains why gold prices per troy ounce are not falling and resist despite the hawkish stance of the U.S. Federal Reserve. In addition, since Russia and China push for a new reserve currency amid the BRICS economies and their partners, demand for gold is growing in the world.

China increased in July its gold imports from the Russian Federation by 8.5 times compared to the previous month, to $ 108.79 million, according to the data of the General Administration of Customs (GTU) of China.

The yellow metal has always been a great hedge against inflation because it rises in price when the cost of living standards rises. Gold can store value efficiently, when paper currency loses purchasing power because of inflation.

The exchange rate of euro/dollar now is : 1.00 euro for 0.97 dollar.

The exchange rate of euro/ruble now is : 1.00 euro for 60.93 rubles.

The exchange rate of dollar/yuan now is : 1.00 dollar for 7.19 renminbi.

The exchange rate of dollar/yuan now is : 1.00 dollar for 62.65 rubles.

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© Copyright 2022 – Swann Collins, investor, writer and consultant in international affairs.