“Next Five to Ten Years”

Food, raw materials, oil: prices are rising in almost all areas of life. DIW President Marcel Fratzscher expects this to remain the case for years to come.

According to the German Institute for Economic Research (DIW), Germans have to be prepared for constantly high prices. Prices would rise “over the next five to ten years,” DIW chairman Marcel Fratzscher told Deutschlandfunk on Tuesday. He cited the war in Ukraine, great uncertainty and the end of globalization in its current form as reasons.

The high prices are currently largely “driven by speculation,” Fratzscher told Deutschlandfunk. Some of the supply is withheld for fear that there will not be enough in the future. “Worry about the future drives prices up.” The uncertainty of “what might happen” is perhaps the greatest poison.

President of the DIW Marcel Fratzscher (Source: Jürgen Heinrich/imago images)

Fratzscher expects the situation to calm down only if the war in Ukraine ends “in such a way that Russia stops attacking other countries”. Although Russia is a relatively small economy from a global perspective, Germany in particular is very dependent on the country. “They hold us in a vice.” As long as the war continues, “we will feel the effects economically”.

Milk and butter in particular are becoming more expensive

Especially for certain products, consumers may soon experience rapid price increases. German dairies expect further significant increases in milk and butter prices. “Consumers have only received part of the price increases,” the managing director of the dairy industry association, Eckhard Heuser, told the “Handelsblatt”. Wholesale prices have already risen much more strongly, but will only reach consumers towards summer.

“A liter of milk is definitely more than a euro,” Heuser said. With butter, he calculated ten cents more per packet.
This is not only due to rising costs for producers, but also consumer hoarding. “Unfortunately, hoarding plays a role in driving up prices,” Heuser told “Handelsblatt.” “Consumers freeze butter and stock up on UHT milk.”

But food manufacturers themselves have also been hoarding. “They stock more milk, butter and cheese so they can always deliver.” This has already led to a relatively strong price increase. There is no shortage of milk in Germany in particular; the country produces much more than it consumes itself.

Fratzscher: The state must invest more

Fratzscher expects more relief from the traffic light government because “we haven’t seen the end of the road yet.” Politicians must help in a targeted way, he said on Deutschlandfunk. The chairman of the DIW has proposed to set the reduced VAT rate of seven percent at zero.

In addition, the state must invest much more – in the energy transition, digitalization and education. The debt brake “will not be sustainable for five to ten years”. The country should not “save broken”.

Fratzscher rejected calls for worker restraint in collective bargaining. Wage increases and the upcoming increase in the minimum wage are the best measures to help people quickly and without bureaucracy. A sense of proportion is necessary, but “I think adjustments are absolutely necessary”, also so that consumption can be maintained.

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