Is the specter of inflation returning?

Prices are rising, that’s for sure. But what does that mean for consumers and investors? Questions and answers.

At the checkout, many people feel that it is getting more expensive.

Dhe concern about inflation is back. In the USA, the annual rate of inflation recently jumped sharply to 4.2 percent, in Europe it has been increasing since the beginning of the year. The Federal Statistical Office will publish an initial estimate of how consumer prices in Germany developed in May this Monday (2 p.m.). It is controversial whether consumers have to adjust to permanently rising prices.

Why have consumer prices been rising since the beginning of the year?

Inflation in Germany and the euro area is currently driven by several factors. The world economy is picking up speed again, especially the economies of the heavyweights USA and China are growing rapidly. In addition, the demand for raw materials such as crude oil is increasing, which is driving energy prices up. The value added tax, which was temporarily reduced in Germany during the Corona crisis, has also been back to its old level since the beginning of the year. And in Europe’s largest economy, a CO2 tax has been levied on transport and heating since the beginning of 2021.

Why is inflation rising faster in the US than in Europe?

Because of the crisis, the US has launched huge stimulus packages. The package approved in March alone had a volume of around 1.9 trillion US dollars, which corresponds to almost a tenth of the annual economic output. In addition, the world’s largest economy is ahead of the Europeans with its vaccination campaign, which is why economic life is returning to normal, also in the important area of ​​services.

How much is the inflation rate rising in the US?

US consumer prices rose unexpectedly strongly in April by 4.2 percent compared to the previous year. It was the strongest jump since September 2008. In the euro area, the increase of 1.6 percent was comparatively moderate. Used vehicle prices rose fastest in the US – by 10 percent, the largest monthly increase since 1953. These inflation rates were responsible for a third of the overall increase in inflation. As a result of the relaxation of the Corona requirements, more expensive flight tickets, hotels and vacation trips were responsible for the rest.

Could the easing also fuel prices in the euro area?

A comparable development can be expected for the euro area, say Helaba’s economists. “The more restrictive Corona measures are withdrawn, the more demand in the service sector – especially tourism – is likely to rise rapidly and contribute to price increases.”

What danger does rising raw material prices pose?

Not only is the price of crude oil rising with the global economic recovery. Basic materials such as wood, other building materials or metals have also become scarce and expensive in some cases. According to Commerzbank expert Ralph Solveen, this will have comparatively little impact on consumer prices in Germany. The shopping basket on which the inflation calculation is based is dominated by services. Including rents, these accounted for significantly more than half of the shopping basket.

What is the next step in consumer prices in the eurozone?