BERLIN – According to one study, consumers in Germany perceive inflation as three times higher than officially determined. Why is that?

In May, food prices in Germany rose by 14.9 percent compared to the previous year.

According to a study by the insurance company Allianz Trade, the inflation rate perceived by people in Germany in May was 18 percent – therefore, almost three times higher than the officially published 6.1 percent. Generally speaking, people usually feel inflation in everyday life as higher than the measured value, the analysis states. But the current inflation dynamics have further increased that difference.

“The large gap between perceived and actual inflation exists especially in Germany,” says Jasmin Gröschl from Allianz Trade. In the eurozone as a whole, those two values differ by around nine percent, and in Germany by around eleven. “So that difference plays an important role for the economy and entrepreneurs, as well as for interest rate policy,” says Gröschl.

Experts also investigated the reasons for such a large difference, which is also related to the composition of the consumer basket and the actual behavior of consumers.

Accordingly, consumers pay more attention to price changes of products they buy frequently, such as food and drinks, fuel, or other necessities for everyday life. “If those prices in stores rise above average, people tend to feel that inflation is much higher,” the experts explain.

In May, food prices in Germany rose by 14.9 percent compared to the previous year. Those prices now have by far the greatest impact on overall price increases, according to the Federal Statistical Office.

But psychological aspects, demographic and regional differences, as well as individual consumer behavior can also lead consumers to feel price increases differently from officially measured values.

As Allianz Trade experts note, people focus in their perception on price increases that are particularly important to them. In contrast, stable or falling prices of other products and services usually go unnoticed. This creates a distorted picture and a large discrepancy between perceived and actual inflation.

In addition, inflation rates can differ by regions or cities. But official measurements are based on national or regional averages, which may not accurately reflect the situation on the ground, the authors of the study point out.

Official inflation rates often differ significantly within the European Union. In May, they ranged from 2.8 percent in Greece to 21.5 in Hungary. In neighboring Austria, inflation was 8.8 percent, higher than in Germany (6.1%) and Switzerland (2.2%).

“The key factors of inflation are geographical proximity to Russia and dependence on imports of energy and food, state interventions in price formation, and the strength of the national currency,” explains Gröschl.

In Germany, all those factors affecting the inflation rate are visible: heavy dependence on imports from Russia caused a sharp rise in energy prices. The federal government responded by capping the price of electricity and gas. In the eurozone as a whole, the weak euro increased inflation because goods traded in dollars, such as oil and gas, became more expensive.

Source: seebiz.eu