M.he Federal Statistical Office is not expecting a drastic slump in economic output in Germany in the first quarter. The recovery of the economy from last year has stopped for the time being, said Destatis expert Albert Braakmann on Tuesday at an online conference.
While the manufacturing industry got off to a relatively good start in the new year, the retail trade for textiles, clothing and shoes had to cope with a decline in sales of around three quarters compared to the pre-crisis period. In return, online retail had the highest monthly sales of all time in January, a sales increase of 38.4 percent compared to February 2020. The construction industry, on the other hand, had a significant production decline of 12.2 percent compared to December at the beginning of the year. Apparently little was done, especially in the interior design – this was attributed to pull-forward effects with which clients reacted to the renewed increase in VAT.
In contrast, inflation has already reached its pre-crisis level again, emphasized consumer price specialist Susanne Hagenkort-Rieger. In particular, the rise in the price of petrol and heating oil in the first two months of this year was exceptionally high. In January, gasoline in Germany was 11 percent more expensive than December. That was the highest price increase in 27 years. In February fuel prices then increased again by 3 percent. Heating oil was 14 percent more expensive in January compared to the previous month, and by 6.5 percent in February.
After half a year of negative monthly inflation rates due to the corona, inflation this year in Germany has now “jumped” higher, with 1 percent in January and 1.3 percent in February, reports the Federal Office. The experts blame three special effects for this: the renewed increase in VAT compared to December 2020, the introduction of a CO2 price on fuels and heating oil at the turn of the year and the sharp rise in the price of crude oil. The latter was based on the expectation of a global economic recovery and an artificial shortage of production volumes by the oil states.
Base effect: oil price in 2020 partly negative
The Federal Statistical Office is expecting a further rise in inflation over the course of the year due to two so-called base effects alone: From April onwards, it should become noticeable that the oil price collapsed with the first lockdown in the previous year. The price of American oil even turned negative at times. If you compare the prices from this year with the exceptionally low prices of the previous year, that should drive the inflation rate up from April onwards.
A second base effect will become noticeable from July when the prices from this year with the higher VAT are compared with those from the previous year with the lower tax. The tax was reduced for a limited period from July 1st to December 31st. If the VAT cut had been passed on to consumers in full, the inflation rate would have arithmetically reduced by 1.6 percentage points over this period. According to surveys by the Deutsche Bundesbank, only about half of this happened. That’ll come back on it now.
While the renewed tax hike in January had an immediate effect on prices compared to the previous month, it will now be felt as a base effect year-on-year from summer onwards. The Economic Advisory Council put the effect of the CO2 tax on inflation at 0.5 percentage points through the rise in the price of petrol and heating oil alone, and even around one percentage point when other intermediate goods are taken into account. The further effects of the price of crude oil on inflation are more difficult to predict.
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