Rising energy prices are driving German inflation expectations

The escalating conflict in the Middle East is causing oil prices to rise significantly. It's not just drivers who feel this at gas stations. The Ifo economics chief expects that energy suppliers will also raise their prices.

Companies in Germany increasingly want to pass on the increased energy costs to their customers. The barometer for their price expectations rose to 22.7 points in September from 21.4 points in August, as the Munich Ifo Institute announced in its survey. This suggests that the higher energy costs are increasingly being passed on to sales prices.

“Fuel and heating oil have already become noticeably more expensive, and energy suppliers are likely to raise prices for electricity and gas in winter,” said Ifo economics chief Timo Wollmershäuser. At the same time, price pressure for many goods and services will continue to increase. “Overall, the inflation rate will climb to over three percent in the coming months,” said Wollmershäuser.

Record prices for diesel and gasoline are likely to have pushed the German inflation rate above the three percent mark in September for the first time in almost three years. Economists predict that consumer prices are likely to rise by an average of 3.1 percent compared to the same month last year. The last time there was a higher value was at the end of 2023. In August, the inflation rate was 2.9 percent.

The escalating conflict in the Middle East has caused oil prices to temporarily rise well above the $100 per barrel mark. German drivers felt this at the pumps: According to the ADAC car club, record prices for diesel and gasoline had to be paid several times in September. Natural gas and electricity prices also reached their highest level since the end of 2022 in mid-September, according to the Ifo Institute.

In September, price expectations rose in most sectors of the economy. The increase was particularly clear among energy-intensive industrial companies: there the indicator climbed to 24.8 points from 19.5 points in August. Price expectations also rose sharply in retail - from 30.0 to 35.6 points. On the other hand, service providers are less likely to plan for rising prices. Here the value fell from 20.9 to 19.8 points.