Consumers will probably be asked to pay more in 2024

Inflation is easing towards the end of the year, but the decisions of the traffic light government are likely to cause a rise again. Consumers are bearing the costs twice over, as many companies want to raise prices at the start of the year.

The buying mood of Germans improved significantly at the end of the year - but experts are pouring water on the wine again for the coming months. According to the economic research institute IFO, the decline in inflation is likely to stall. The proportion of companies in Germany that want to raise their prices in the coming months is increasing again, according to the Munich-based researchers.

The IFO barometer for companies' price expectations climbed to 19.7 points in December, up from 18.1 points in November. "This should halt the decline in inflation rates for the time being," said Timo Wollmershäuser, head of the IFO economic survey.

Restaurateurs in particular want to increase their prices noticeably: Here, the barometer shot up to 87.6 points in December, after 45.9 points in the previous month. The mood in the restaurant trade is currently in the doldrums, as the reduced VAT on food due to the coronavirus crisis and rising energy prices as a result of the Russian invasion of Ukraine will expire in January. The rate will then return to 19 percent instead of 7 percent.

Buying appetite increases at the end of the year

According to a consumer survey by market research company GfK and the Nuremberg Institute NIM, both income expectations and the propensity to make major purchases improved noticeably at the turn of the year. In their forecast for January, the two institutes put the consumer climate at -25.1 points. This represents an increase of 2.5 points compared to the previous month. However, the consumer climate before the pandemic was around +10 points.

The experts expressed concerns about future developments. "It remains to be seen whether the current increase is the start of a sustained recovery in consumer sentiment," said NIM expert Rolf Bürkl. "Consumers are still very worried." Geopolitical crises and wars, sharply rising food prices and discussions about the federal budget are causing uncertainty. "As a result, the level of consumer confidence is currently still extremely low."

These concerns are supported by a survey conducted by the consulting firm AlixPartners. According to the survey, around 35% of Germans intend to spend less money on consumption in the coming year. This applies to spending on everyday products such as food, but also to areas such as electronics, leisure and DIY products as well as entertainment and gastronomy. The consultants surveyed 10,000 consumers in seven countries in October and November, including 2,000 in Germany. The most important pillar of the slight improvement at the end of the year was income expectations. People could hope for higher wages and salaries.

Due to the German government's decisions to raise the 2024 budget with a higher CO2 price, plastic levy and rising tax on airline tickets, economists also see inflation soaring at the start of the year. "All in all, the inflation rate is likely to be just under four percent in January," according to a study by Commerzbank. In November, it had fallen to 3.2 percent, the lowest level for around two and a half years. An increase to 3.7 percent is already expected for December due to a special effect, as the state had taken over the monthly advance payments for gas and district heating on a one-off basis a year earlier.

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The predictions suggest that consumers might face higher prices in 2024 due to the government's decisions, as many companies plan to increase prices at the start of the year. This potential price increase could be a burden for consumers, as they are already dealing with inflation and rising costs.

Despite the increase in buying appetite at the end of the year, a survey indicates that around 35% of Germans plan to spend less money on consumption in 2024, citing concerns about inflation due to the government's decisions to raise the CO2 price, plastic levy, and tax on airline tickets.

Source: www.ntv.de