Inflation in Germany, in Europe and in many other countries around the world is higher than it has been for a long time. Strong price increases can be observed in particular for energy and food. This presents many people with considerable challenges in their everyday lives. Private households with low and medium incomes suffer particularly from this as they have to spend a larger share of their income on energy and food compared to higher earners. But energy-intensive companies are also among those facing significant challenges due to high energy prices.
The currently soaring prices mean a loss of real purchasing power on the part of private households and thus lead to lower consumer demand. On the corporate side, rising costs weigh down production as well as investment demand. Therefore, high inflation is associated not only with undesirable social policy developments but also the risk of an economic downturn. A recession or even a prolonged period of stagflation cannot be ruled out in many countries at present.
The causes of high inflation in Germany and Europe, but also in many other countries, can be traced back primarily to the Corona pandemic and the associated disruptions to global supply and value chains, as well as to Russia’s illegal war of aggression against Ukraine and the associated price developments on the global energy and commodity markets. Nevertheless, the state has the power to cushion the financial burdens for private households and companies in the short term with targeted interventions and can contribute significantly to overcoming high inflation in the medium term.
Inflation is back and currently dominating the economic and socio-political discussion in Germany as well as in many other countries. This blog series takes a closer look at the situation in different EU Member States. Learn more in the series "What to do About Inflation".