Stroll through Berlin’s most Instagrammable neighborhoods and you may not know that inflation is rising, costs are skyrocketing, and Europe’s biggest war since World War II is raging just two borders away. The bars and restaurants are packed, and the lines for the clubs are long, as locals and tourists alike make the most of the summer months.
Real prices for activities and leisure goods have gone up, but orders for avocado toast and artisan bread don’t seem to have gone down. That’s partly down to income, as higher-earners who tend to consume these types of staples can, or are willing, to absorb the extra few euros that many companies have added to sales this year.
“The price of everything has gone up,” Stephanie Lynch, a barista at Blaue Bohne, a coffee roaster in the popular Berlin neighborhood of Friedrichshain, tells DW. “Literally everything we use here has gone up in price: the paper cups, the cardboard, the bags we use to put the coffee in. Everything.”
After years of holding prices steady, Lynch said coffee made a round of price increases to reflect previous disruptions to supply chains, such as pandemic restrictions, a poor coffee harvest in Brazil and the blockade of the Suez Canal from the last year.
Another hike may soon be needed, he added, as a result of a worrying wave of economic data, though many customers seem willing to shell out more for the same beans.
Inflation bites consumers
Inflation is hovering around 8%, compared to the same period last year, according to the German Federal Statistical Office. Consumer food and energy prices increased by more than 38% and 11%, respectively.
That may still be manageable for small-batch roasted espresso drinkers, but the lower down the income ladder, the harder it is to keep up.
“Of course, the consequences of the current crisis are felt directly,” Markus Grabka, senior researcher at the German Institute for Economic Research, tells DW. “Low-income households, for example, are more affected by rising energy costs than those with middle or high incomes.”
Staple foods (cooking oil, flour, meat, milk and eggs) have increased by double digits. In all, food costs may be 250 euros ($263) more per person this year, according to a study by insurer Allianz Trade.
The added burden is heaviest for those already struggling to make ends meet. More than 560,000 pensioners in Germany need a government supplement because their pensions are too low to break the poverty line. Rising food and energy costs take an even bigger bite out of your already smaller pie.
Homeowners and mortgages
Only 42% of people in Germany own their homes. Inflation has further dashed hopes of homeownership as central banks rush to raise interest rates in an effort to rein in prices.
A housing crisis was already taking hold in many parts of Germany, but those who managed to find something to buy were often rewarded with ultra-low interest rates. An era of almost debt free, which pushed mortgages to 1% or less, appears to be over.
In the past few months alone, interest on home loans has risen to more than 3%, the highest in a decade, according to mortgage adviser Interhyp, and a further rise is expected. That adds tens or even hundreds of thousands of euros to the buyer’s costs in the course of paying the bank.
a perfect storm
The historic widespread price spiral is the culmination of a cascade of events that changed assumptions about the free flow of trade around the world.
The COVID-19 pandemic caused a mismatch between supply and demand. In an unprecedented intervention, governments and central banks have come together to protect people from the economic impact of lockdowns across the country.
The lack of parts has not only been a problem for global giants that produce high-end cars and smart devices, but also for local small business owners. Bike shops in Berlin, for example, have turned away customers due to a lack of stock of essential items. Repairs that normally take a day or so can drag on for weeks as they wait for orders to arrive.
Global supply chains were still catching up when the world’s largest wheat exporter, Russia, invaded the world’s fifth largest, Ukraine. That has left grocery store shelves empty of flour and oil, which Ukraine also exports on a large scale. Meanwhile, oil and gas supply disruptions have shattered energy markets, which in turn add costs to everything used for fuel, from production to transportation.
Germany has just activated the second of its three-stage emergency gas plan, a historic first, which could lead to restricted industrial production and even higher prices.
Energy Price Hikes: No End in Sight
While economists debate how high prices will go and for how long, some are optimistic that some are beginning to level off, the risk remains a delayed impact on costs as increases work their way through the chains. of supply. They affect producers and wholesalers first, before moving on to retailers and consumers.
That means people can still feel the pinch even after exacerbating factors ease.
“My concern is that we could have a very worrying situation in a few weeks or months,” German Finance Minister Christian Lindner told the public broadcaster. ZDF. “We’re looking at three or four, maybe five, lean years that we need to find an answer for.”
Edited by: Rina Goldenberg
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