Economy: Producer prices rise much more slowly

In Germany, inflation at the manufacturer level has slowed down significantly, fueling hopes of a drop in high inflation.

Economy: Producer prices rise much more slowly

In Germany, inflation at the manufacturer level has slowed down significantly, fueling hopes of a drop in high inflation. In October, producer prices rose by 34.5 percent year-on-year, as the Federal Statistical Office announced on Monday in Wiesbaden. In the previous month, the rate was much higher at 45.8 percent. In a monthly comparison, producer prices even fell by 4.2 percent. It was the first drop since May 2020.

Energy prices continue to rise sharply year-on-year, but there is a noticeable relief on a monthly comparison. Although energy prices in October were 85.6 percent higher than a year earlier, they fell by 10.4 percent compared to the previous month. According to the statistical office, electricity and natural gas in particular were cheaper on a monthly basis, after there had been some sharp price increases in the previous months. There are still significant price increases for food and intermediate goods over the year.

Surprised by the extent of the slowdown

Although experts had expected weaker momentum in producer prices, they were surprised by the extent of the slowdown. A significantly higher annual rate of 42.1 percent had been expected on the market. In a monthly comparison, analysts had even expected a further price increase on average.

"A spectacular drop in prices after all those months of significant price increases," commented economist Jens-Oliver Niklasch from Landesbank Baden-Württemberg. "Perhaps the first sign of some cyclical easing of price pressures." However, the end consumers could not really be happy because the energy prices have fallen, especially for bulk consumers.

Inflation problem far from over

Economist Ralph Solveen from Commerzbank spoke of a sign of hope. However, the declining inflation is largely due to energy prices. For other goods, the year-earlier rate fell only slightly. "Today's numbers give us hope that consumer prices will soon reach their highest inflation rate." However, the problem of inflation is far from over.

In October, consumer prices in Germany were 10.4 percent higher than in the same month of the previous year - the strongest increase since 1951. In German wholesale, too, the strong upward pressure on prices had recently weakened significantly - the trend towards relaxation that can be observed could also reach consumers.

Producer prices capture producer-level price pressure by reflecting producer selling prices. The development usually affects consumer prices, which the European Central Bank (ECB) bases its monetary policy on. In view of the high inflation, the ECB has, after some hesitation, raised its key interest rate significantly. Further rate hikes are expected.

"Purchase prices only passed 34 percent"

Despite the weaker momentum in producer prices, experts do not see the high inflation in Germany coming to an end anytime soon. A current survey by the Ifo Institute shows that the risk of inflation has not been banned. Accordingly, German companies are only slowly and incompletely passing on their increased purchase prices to their customers. "In the past few months, companies have only passed on 34 percent of their purchase prices," as the research institute announced on Monday in Munich. It is only in the coming months that the companies want to pass on the high costs, for example when purchasing raw materials, more, it is said.

Weak demand, competitive pressure and long-term contract terms are holding companies back from raising prices, according to the Ifo survey of 6,500 companies. According to Ifo estimates, the delayed transmission of purchase prices will have an impact on future price dynamics. "This is likely to lead to further inflationary pressure on consumer prices in the coming months," said Ifo researcher Manuel Menkhoff.