Energy prices in Germany are expected to have risen by approximately ten percent in April due to the Iran war, driving overall consumer prices up 2.9 percent compared to the previous year. Food prices increased by 1.2 percent, while services rose by 2.8 percent, according to initial estimates released by the Federal Statistical Office (Destatis). German consumers, according to a survey, fear further price increases and the possibility of having to impose financial constraints on themselves.
"The energy price shock is severe," explained Silke Tober, inflation expert at the Institute for Macroeconomic Research and Business Cycle Analysis (IMK) of the Hans Böckler Foundation. According to estimates from the Statistical Office, energy prices rose by 10.1 percent in April compared to the same month last year.
However, "the surprisingly strong decline in service inflation has somewhat dampened the rise in the inflation rate in April," explained Dirk Schumacher, chief economist at the state-owned development bank KfW. This decline is at least partially a calendar effect "and should therefore not be interpreted as a genuine sign of easing," he warned.
Before the start of the Iran war at the end of February, inflation in Germany had been easing, it stood at 1.9 percent in February. In March, it then jumped to 2.7 percent due to sharply increased energy prices resulting from the Iran war. The current inflation figures are "a warning signal," declared Ramona Pop, head of the Federation of German Consumer Organizations (vzbv). "The price increases have long since arrived in everyday life."
In a Forsa poll conducted for the vzbv, 42 percent of respondents said they felt the increased prices most acutely in food. The mobility sector followed in second place at 31 percent. According to the survey, 58 percent of respondents have very great or rather great concerns that prices will rise so sharply due to the war in the Middle East that they will have to impose financial constraints in their daily lives. Forsa surveyed 1,001 people aged 18 and over from April 9 to 13.
In fact, more companies in Germany are planning to raise prices, according to a survey by the Munich-based Ifo Institute. "Companies are now increasingly passing on the increased energy costs to their customers," explained Ifo business cycle chief Timo Wollmershäuser. The Ifo-calculated indicator for price expectations rose from 25.5 points in March to 31.6 points in April, the highest level since January 2023.
"A clear indication of a further increase in consumer prices" is provided by price expectations in consumer-oriented sectors such as the hospitality industry and retail. Here, the indicator rose from 27.9 to 39.8 points. "Overall, the inflation rate is likely to climb to over three percent in the coming months," Wollmershäuser expects.
IMK inflation expert Tober also fears "a significantly stronger increase in inflation and massive disruptions in the economy" should energy prices continue their upward trajectory. These consequences would be "quite comparable to the effects of the Ukraine war."
ING analyst Carsten Brzeski also recalled the Ukraine crisis: at that time, the inflation rate jumped from two percent to six percent within five months, "this shows how quickly a severe exogenous shock can actually translate into galloping inflation." However, he does not expect a repetition, as Germany's economic situation is currently worse, "and the ability (and willingness) of consumers to actually pay higher prices is clearly limited."
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