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German factories are raising prices sharply

Ignacy Murawski2021-04-21 08:38Founder of SpotData.pl

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2021-04-21 08:38

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Over the past three months, prices for goods leaving German factories have increased the most in nearly thirteen years. Most importantly, this growth exhibits the effects of three important trends that the industry will struggle with for a long time: climate policy tightening, commodity price hikes, but also the mismatch between sudden high demand and limited supply.

This increase in producer prices will undoubtedly translate into inflation in consumer goods, not only in Germany, but also in other countries. This is another pebble in the garden of arguments that we are entering a period of increasing inflation.

Producer price inflation (prices of industrial goods sold by factories – these are not store shelves) in Germany in March were 3.7%. On an annual basis, the most since November 2011. But given the acceleration of prices in the past three months alone, we are dealing with the highest increases since July 2008. The average monthly increase in producer prices from January to March was 1%.

/ Paul Bizenseau

One of the reasons for the price hikes is the soaring electricity and gas prices, which in turn is linked to climate policy. For example, gas prices are rising due to a carbon tax in effect since January, which must be paid by refiners and gas sellers (25 euros per ton of emissions).

Another important reason for high producer inflation is the increase in the prices of raw materials, which translates into the prices of intermediate goods, such as base metals, wood and plastic products.

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This increase, in turn, can be divided into two factors.

On the one hand, this is due to the commodity boom, which has been triggered by increased demand from ChinaIt contemplates the demand side effects of the energy transition and loose monetary policy. Prices for industrial metals such as copper, nickel and iron ore have risen sharply in the past six months, which translates into prices throughout the supply chain.

On the other hand, the rise in the prices of intermediate goods is due to the disruption of international suppliesWhich I’ve written about a lot in the past months. It turns out that the global trading system is not well prepared for large fluctuations in demand in all directions, and when it recovers, it is difficult to meet customer and transportation needs.

Is increased product inflation a permanent phenomenon? Several triggers will pass later this year, such as supply chain disruptions and supply-demand mismatches. But several factors are likely to last longer – including demand for raw materials or loose monetary policy. Therefore, it is very likely that average inflation in the next few years will be higher than it has been in the past decade.

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