This time everything is different

In the first lockdown last spring, energy became cheaper and food more expensive. In the second lockdown, it almost seems to be the other way around. What’s behind it?

In the supermarket: Groceries have recently become cheaper in some cases - but now the old VAT is coming back.

EWill prices in Germany develop in the same way in the second lockdown as in the first? It doesn’t look like it at the moment. While the spring of last year was characterized by the fact that with the introduction of home offices in many companies and the closure of many shops, energy became cheaper and cheaper and in return, food became much more expensive, at the moment it looks almost the other way around: in the second lockdown appears Energy to become significantly more expensive – while the prices for food are no longer rising particularly sharply and have even fallen for some sub-categories such as vegetables.

As the quarterly FAZ price report shows, the price of oil, which in the first lockdown fell to less than $ 20 per barrel (159 liter barrel), has now risen to around $ 56. That is more than three times the low from April. Since the turn of the year, VAT and the CO2 price for fuel and heating oil have also been increased. All of this will make energy more expensive; especially since electricity – despite attempts by the federal government to relieve consumers here – has risen again in price. In the foreseeable future, energy could turn from a factor that has depressed the inflation rate to a driving factor.

In contrast, the high food prices shocked many consumers in the first lockdown. Suddenly there was cauliflower for five euros. Now, however, the prices for food are on average no longer increasing particularly strongly compared to the same month last year, some are even falling. “In terms of food prices, there were difficulties with the entry of seasonal workers in spring 2020,” says Michael Holstein, DZ Bank’s chief economist. In the second lockdown, which of course also takes place in a different season, that does not matter so far. Accordingly, the inflation rate for food was 4.6 percent in April and only 0.5 percent in December. A driving element of the inflation rate has therefore turned into a rather moderate price increase.

Potatoes: minus 12.7 percent

Holstein even names individual subcategories in which food was last cheaper than a year ago: “The prices for vegetables were 2.8 percent lower in December than a year ago, but the prices fluctuate relatively strongly.” Potatoes averaged 12.7 Percent cheaper than a year ago.

Another important factor influencing prices was the temporary VAT cut in the second half of 2020. “It lowered consumer prices excluding energy, which are otherwise relatively stable, by around one percentage point from July 2020,” says Holstein.

Now the old VAT is coming back

In the past four months, consumer prices as a whole fell on the average of the basket of goods of the Federal Statistical Office compared to the previous year. The monthly inflation rate was minus 0.2 percent in September and October, and even minus 0.3 percent in November and December. So far, the corona crisis has been associated with very low inflation on average. However, there is also criticism of this measurement. The Stuttgart economics professor Hans-Peter Burghof, for example, had identified a significantly higher “everyday inflation” with detailed price observations in supermarkets.

This Thursday the Federal Statistical Office wants to publish the inflation rate for January. Now it gets exciting. The rate is likely to rise due to VAT and CO2 prices alone. Holger Schmieding, economist at Berenberg Bank, expects an inflation rate of plus 0.6 percent for January after minus 0.3 percent in December. He says, however, that such forecasts are fraught with uncertainty. Overall, the development of the inflation rate this year will possibly turn out to be unexpectedly dynamic, says Stefan Schneider, Germany’s chief economist at Deutsche Bank. He cites the recovery in world trade, rising charter rates and raw material prices – and the rise in global capacity utilization as indicators.