Economist Believes That German Inflation Will Stay Higher For Next 2 Years

Economist Believes That German Inflation Will Stay Higher For Next 2 Years by Andrew Blumer last updated on January 04, 2023

According to a famous economist, inflation is not a temporary problem for Germany. In fact, it will stay that way for at least the next 2 years and will ultimately affect the end users. With higher input costs, the companies will have to pass it on, and the end result will be expensive products/services.

The Russian invasion of its neighboring country has also further escalated inflation. Especially the costs of energy and food have increased tremendously in Germany. As a result of these adverse events, the inflation in Germany ended up touching 11.3% during November. In fact, the rise of inflation was fast, and such a pace was only seen during the 1950s!

According to experts, even a price cap on electricity and gas will not be enough to tame inflation and bring it back into single-digit figures.

Inflation In Germany Is Here To Stay

For 2024 and the year after that, inflation will remain an issue... However, after 2 years, Monika Schnitzer (Chief Economist) believes that it will return to around 2%.

As for why inflation continues to remain high, it has to do with the 2nd round effects. In simple words, companies are passing the cost of higher input towards the end users and even exaggerating it in some cases.

According to experts, the main concern is the high prices of electricity, and that's something that the government can tackle to some degree. For now, the government has the option to run its remaining nuclear plants for at least 2-3 years. This will result in the production of affordable electricity as compared to the energy produced from coal, oil, or natural gas.

Before all of that, Germany had plans to eventually phase out nuclear power from its energy mix. But after the energy crisis, it seems that the government will have to take a U-turn on this policy. For now, many government members are of the view that nuclear energy should remain as part of the energy mix for a few more years.