Many consumers had already suspected it, now a study by the German Ifo Institute confirms this suspicion. Prices in trade, agriculture and construction in particular have recently risen more than initial costs justify. Many companies therefore take advantage of the high inflation to increase their profits.
According to the Ifo Institute study published on Tuesday, higher prices for energy and intermediate consumption alone do not explain the level of inflation in Germany. This was suggested by data from official economic performance statistics. From this, the Ifo experts determined differences between nominal and price-adjusted added value.
This allowed conclusions to be drawn about price increases that were not caused by higher wholesale costs.
Savings released for consumption
“After Corona, private households had accumulated high savings,” said the deputy head of the Ifo branch in Dresden, according to Ifo expert Joachim Ragnitz. “These were lifted in 2022 and fueled consumer demand.” The government’s €1 billion support is also likely to have helped support demand and thus widen the scope for price increases.
Companies want to improve the profit situation
Particularly in agriculture and forestry, including fisheries, but also in the construction, retail, hospitality and transport sectors, many companies have increased their prices significantly more than based on increased costs for upstream services alone would be expected. “Some companies seem to use the increase in costs as an excuse to also improve their profit situation by increasing their selling prices,” says Ragnitz.
Farmers would initially have used up their stocks of fertilizer and feed, but had already factored in the expected price increases for reorders into their calculations. In the construction industry, imbalances between supply and demand are likely to have contributed to the particularly strong price increases. This is especially true for some metropolitan areas.
Expert sees European Central Bank necessary
Ragnitz said only more competition would help against excessive price increases. Consumers could also buy cheaper products, dampening profit inflation. There is no reason for government intervention in prices. Due to the disruptive effect on the market signals of scarcity, an excess profit tax could not be enforced in line with the market and legal certainty.
Since there are no indications that the price increases are based on agreements between the companies, antitrust measures do not help either. Combating inflation is primarily a task of the European Central Bank (ECB). The government can help reduce inflation by forgoing broad aid in favor of all households and by limiting policy to particularly poor households.
Source: Krone
I am Wallace Jones, an experienced journalist. I specialize in writing for the world section of Today Times Live. With over a decade of experience, I have developed an eye for detail when it comes to reporting on local and global stories. My passion lies in uncovering the truth through my investigative skills and creating thought-provoking content that resonates with readers worldwide.
