Inflation expected to reach 10% in Germany, crisis sets in.

In the monthly bulletin of August, in which the Central Bank draws up a health check of the Teutonic economy, a worrying fact appears that shakes both the economy of the country and that of Europe after having assumed for years the role of locomotive of the group of 27.

Savings are being eroded more and more as prices rise, regardless of the sector. Especially in the energy sector, raw materials and basic necessities.

The report states:

“As the decline in economic output during the winter months has become much more likely, the high degree of uncertainty about gas supply this winter and the sharp rise in prices could weigh heavily on households and businesses.”

A decline in economic growth has become more likely. Economic development is influenced by uneconomic developments in the gas market.”

In an interview with Spiegel, the newly appointed central bank president confirmed his concerns, warning that Germany will necessarily have to take countermeasures.

Echoing and completing the economic picture, a study by the Institute for Environmental and Development Research (IRD) was published by the IFO Institute that broadens the perspective to the three-year period 2020-2022 by noting how German household savings have fallen from over 70 billion in June 2021 to 1.5 billion today.

Pandemic erodes savers

From 2020 to mid-2021, Germany, like the rest of the world, experienced several confinements, and the German middle class overall managed to accumulate huge savings.

From June 2021 to today, in just over a year, citizens have spent all the savings they have accumulated, and this is mainly because of the huge inflation that affects the world and Europe more than any other country.

This report from the Bundesbank only adds to the concerns and will cause the state to tighten its belt.

Timo Wollmershauser, head of forecasting at the IFO, told microphones:

“The extra savings that many households accumulated during the coronavirus pandemic have now vanished. At the same time, consumer prices will continue to rise sharply. This unfortunately means that private consumption will fail to pull the German economy along for the rest of the year.”

To be fair, the head of the IFO goes on and explains how there has been a great propensity to save in recent years, but unfortunately this is no longer enough:

“If we take the average propensity to save in the five years before the outbreak of the coronavirus crisis as a basis, no less than 70 billion euros more was parked in bank accounts than usual during this period.”

Savings have been completely burned by inflation, and the trend shows no sign of stopping, confirmed by the data for the next quarter as well.

Wollmershauser concludes by explaining that:

“It is likely that high inflation was a key factor in this household ‘saving’.”