Brexit will have 'consequences' for the UK says Olaf Scholz
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As the euro continues to tumble and inflation soars, many Europeans have been quick to point to the energy crisis as the driving force behind the devastation. But German publication Focus has pointed to a different, less obvious culprit. The German finance analysts suggest it is their nation’s dependence on imports from abroad which is sending the euro crashing down, rather than rising energy prices.
While Germany battles its fourth wave of coronavirus, the inflation rate is rising unchecked.
According to data from the Federal Statistical Office (Destatis), inflation in November was 5.2 percent.
The Christmas season, which is usually already expensive for many families, will therefore become even more expensive.
But it is not only high energy and raw material prices that are driving the spiralling inflation, it is also down to specific goods from abroad.
Destatis’ price list provides information on how the prices of the differently weighted goods classes in the market basket are developing.
It shows that just four classes of goods are responsible for almost 50 percent of the inflation rate.
Fuel and energy for vehicles account for 28 percent of the rate but make up only 3.5 percent in the market basket.
The dramatic energy price increase of 42.9 percent compared with the same month last year explains why it has contributed so much to the inflation rate.
The difference is even clearer when it comes to the goods classed as “heating oil with levy”.
This class is weighted only 1.2 percent in the Federal Office’s shopping basket, but makes up 13.64 percent of the inflation rate.
Again, this is due to the dramatic price increase of 59.1 percent compared to the previous year.
The price increases for telephones (2.9 percent), toys (4.4 percent) and televisions (2.6 percent) are more moderate.
The issue with these classic Christmas gifts is not so much the prices – rather, the problem is delivery bottlenecks.
What all these goods (fuel, telephones, toys and televisions) have in common is that Germany heavily relies on foreign imports for each of them.
Therefore, one of their main causes of inflation is “imported inflation”.
Imported inflation is any inflation that results from rising import prices.
The higher a country’s import quota, the more vulnerable an economy is.
With a quota of 37 percent, Germany is quite vulnerable.
There is very little Germany can do about imported inflation, unless they decide to drop taxes on particularly affected goods.
However, if the German government did opt for that strategy, the state budget would lose important tax revenues.
Unless that difficult decision is made, inflation looks set to continue rising and the Euro dropping.
Additional reporting by Monika Pallenberg.
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