Over the past few months, Germans have experienced rising prices that have significantly increased the cost of living. Now, following Russia’s invasion of Ukraine, prices are expected to rise even further.

Inflation rate in Germany hits record high

Prices in Germany have been steadily rising for months. The rate of inflation for the year 2021 hit a record high of 5,3 percent and in December, just three months ago, consumer prices rose at the highest rate in almost thirty years. In the first few months of 2022, however, inflation rates have dropped, although consumer prices are still continuing to rise.

In January, consumer prices rose by 4,9 percent overall, with housing costs rising by 5,2 percent, while transport and leisure costs rose by 10,6 percent and 5,4 percent respectively. One major reason behind the price hikes is the increasing cost of energy, which has led to extra costs - such as the cost of heating offices and warehouses - passed onto consumers. The rising consumer prices have also been attributed to supply chain issues, housing shortages and the semiconductor crisis that is currently affecting the automobile industry.

The Federal Statistical Office (Destatis) reported that, in February, consumers paid 5,1 percent more for groceries than they did during the same period in 2021. On top of this, price increases were announced by large German breweries, and products such as toilet paper, beef and tomatoes also experienced price hikes. The German government has since agreed to a 13-billion-euro relief package to help relieve citizens of the financial pressure.

Russian invasion set to drive energy prices up even further

Russia’s invasion of Ukraine has led experts to believe that prices in the federal republic will rise even higher in the future. Russia is one of Germany’s main suppliers of oil and gas, and the current crisis has seen the price of both rise significantly recently. Just this past Sunday, petrol and diesel prices hit record highs, with a litre of Super E10 costing 1,965 euros and diesel costing 1,984 euros per litre.

The German Economic Institute (IW) has indicated a direct link between the Russian invasion and rising diesel prices, as, in 2019, 15 percent of diesel sold in Germany came from Russia. The invasion also coincided with price hikes for natural gas, which is used in heating and for generating electricity.

Price of everyday consumer goods expected to rise

Experts believe that these price increases will also cause the prices of groceries to rise. “The increase in energy prices and logistics costs due to the Ukraine war will be felt by people in their everyday lives, and that means every time they shop in a supermarket or at a discounter,” said Boris Hedde, Managing Director of the Cologne Institute of Retail Research (IFH). Trade expert Robert Kecskes agreed with this sentiment: “The conflict will increase the pressure to raise prices even more. The inflation will certainly be considerable.”

The problem is, rising energy costs effects producers at almost every stage of production. For example, in meat production, the cost of producing animal feed has risen, as has the cost of transportation, as well as the cost of storage. “The producers will certainly try to pass on these additional costs to the trade and consumers,” Kecskes explained.

Experts expect reverse in COVID pandemic trend

During the pandemic, experts noticed Germans spending more money in larger supermarkets instead of discount shops. However, this trend is now expected to reverse. “The expected price increases could change shopping behaviour and ensure that more shopping is carried out at the discounters again, and that they regain lost market share,” Hedde said.

Kecskes expects that consumers will start buying more of retailers’ own-brand products instead of more expensive branded products. This is likely to lead to more special offers for consumers, as supermarkets try to attract customers.