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Inflation Surges As Germany Tracks Record-High PPI

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Inflation Surges As Germany Tracks Record-High PPI

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In July, Germany’s producer prices rose sharply, in step with increasing energy prices, to post the biggest increase ever recorded, which is telling as the Federal Statistical Office of Germany, Destatis, has been doing its job for a very long time, 69 years now.

The tracked producer price index (PPI) reveals a 37.2% increase in production costs over the year.

This implies a 37.2% drop in profits or more, as the relationship is usually nonlinear. In other words, a drop in one-third of any manufacturer’s profitability. This is also the data behind the massive layoffs witnessed even from giants that, ideally, should absorb the shock.

From June to July alone, the PPI rose 5.3%, which also was the biggest month-on-month increase ever recorded.

It indeed has been a year of firsts for Destatis.

Since all production processes run on energy, the fact that energy prices more than doubled across all sectors, from oil to natural gas to electricity, is to blame for this spike in the PPI. And if you had any energy stocks in those sectors, this is no cause for celebration because the consumer price index – CPI (which tracks the increase in prices of consumer goods) went up too.  

To say it clear: in Germany, you have more money, but vegetables were more expensive.

On the other side, data shows that the prices of intermediate goods did not go as far up (19.1% in a year). In any case, just-a-little-bit-more-expensive TV sets might mean nothing if nobody can afford the electricity. Probably, people are too busy working a-little-bit-more, anyway.

The prices of nondurable consumer goods like food (CPI’s territory) increased even less, with a surplus of farm production from some areas which was sold at near-giveaway prices.

Prices of capital goods (like land) increased the least because everybody was trying to survive. Hardly anybody was building their future home.

Not in this economic weather.

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