Although Germany is not the eurozone country experiencing the highest inflation rate, the trend is nevertheless uncomfortable. Consumer prices posted another hefty rise in January (+5.1% y/y, harmonised index), although this was less than in December 2021 (+5.7%). The end of positive base effects – caused by the end of the VAT rate cut in place in the second half of 2020 – did not therefore result in a marked fall in inflation.
Instead, other factors had a significantly stronger effect, with higher energy prices leading the way. The CPI’s energy component[1] rose by 7.3% m/m in January, its biggest monthly rise since July 1991. With oil prices now at their highest level for eight years, and the escalation of tensions in Eastern Europe, it looks less and less likely that consumers’ energy bills will ease significantly in the near term.
The German economy, where real GDP contracted by 0.7% q/q in Q4 2021, nevertheless continued to show a strong performance on the employment front. According to the Federal Ministry of Labour, the drop in unemployment accelerated in January (-48,000), and the jobless rate dipped by 0.1 percentage points at 5.1%. Further evidence of this strength came from new job openings, which hit nearly 840,000 in January. This has been the highest figure since 1992, when the current statistical series began. On the flipside, many vacancies are unfilled and labour shortages seem to be intensifying.[2]
Industrial activity continues to be hampered by supply-chain problems. These remained substantial in January, affecting most sectors, as shown in the latest Ifo survey[3]. This survey nevertheless reveals a slight easing of these issues, which is also visible in the PMI figures. In January, the latter showed a further shortening of delivery lead times and an increase in manufacturing orders for the first time in six months. There was also a visible improvement in the Ifo survey: the business climate index, which had been falling since last June, improved slightly in January.
Germany: quarterly changes
