German economy is sinking faster than the Titanic

By Romegas

Yesterday, 20th October 2022, the Federal Statistical Office of Germany released shocking figures on producer cost inflation which is devastating for German producers.

The report states that producer prices for industrial products were 45.8% higher than in September 2021. The year-on-year change rate was just as high as in August 2022. August and September 2022 were therefore the highest Increases in producer prices compared to a month in the previous year that have been measured since the survey began in 1949.

The main reason for the increase in commercial producer prices compared to the previous year is still the price development for energy, due to the high weighting of energy in the overall index, combined with exceptionally high price changes. Energy prices in September 2022 were on average 132.2% higher than in the same month last year. In addition, partly as a result of the huge increases in energy prices, intermediate goods (+16.8%), capital goods (+7.8%) and durable and non-durable consumer goods (10.9% and 18.3%) also rose significantly.

In September 2022, the price increases for natural gas in distribution had the greatest impact on the increase in energy prices compared to the same month of the previous year with an increase of 192.4%, and for electricity with an increase of 158.3%.

Electricity cost 259.8% more for redistributors than a year earlier, special contract customers had to pay 148.9% more. For commercial installations, which are often subject to collective bargaining agreements, prices were 17.4% higher than a year earlier. Compared to the previous month, the prices for electricity, considered across all customer groups, rose by 3.5% in September 2022.

Natural gas in distribution costs almost three times as much as in September 2021 (+192.4%). Industrial customers paid 264.8% more for natural gas than a year earlier. Natural gas was 233.1% more expensive for power plants and 199.9% more expensive for resellers. For buyers of smaller quantities, natural gas prices rose somewhat less sharply but were about twice as high as in the previous year (trade and industry +111.0%, households +95.1%). Compared to August 2022, natural gas was 6.6% more expensive across all customer groups.

Intermediate goods were 16.8% more expensive in September 2022 than a year earlier. The main reason for the rate of change compared to the same month last year in this area was the price increase for metals by 18.1%. Compared to August 2022, however, these prices fell by 0.3%. Pig iron, steel, and ferroalloys were 19.8% more expensive than in September 2021, and non-ferrous metals and their semi-finished products were 15.0% more expensive year on year.

Basic chemicals, fertilizers, and nitrogen compounds increased in price by 33.5% compared to the previous year. The price increases for fertilizers and nitrogen compounds were particularly high at +113.5%. Ammonia, an important precursor for fertilizer production, was more than three times more expensive than in September 2021 (+208.7%).

The prices for pellets and briquettes from sawmill by-products rose by 144.3% within a year, and wood in the form of flakes or chips increased almost as much by 144.5%. Newsprint increased in price by 90.4%. Grain flour was 44.3% more expensive than in September 2021, and feed for livestock was 34.7% more expensive.

The prices for butter (+72.2% compared to September 2021), pork (+46.3%), cheese and quark (+39.7%), and milk (+37.5%) rose particularly sharply. Unprocessed vegetable oil prices were 35.7% higher than in September 2021, having fallen month-on-month for the fourth straight month. Coffee was 32.0% more expensive than a year ago.

This rate of inflation brought about by rising energy prices is simply unsustainable, and more and more German producers will simply close shop. Many will never re-open again and the effect will be exponential throughout the entire economy.

The EU and the media are trying very hard to pin these problems on the war in Ukraine – but the responsibility lies entirely with EU Policies. As one can note from the chart below, inflation in producer prices was already rising steadily well before the conflict and its origins are largely due to the EU’s myopic energy policies to favour so-called renewable energy over gas, coal, and oil.

This was of course compounded by the EU decision to unilaterally sanction Russian energy, whose relative cheapness literally fuelled German and European Industry and kept it competitive. The sanctions became the proverbial straw that broke the camel’s back.

As a consequence, Europe’s economic powerhouse is now sinking faster than the titanic and seriously threatens to drag the entire Eurozone down with it.

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