… because the cost of living there is going through the roof. Reuters reports that last month, German producer prices rose by 45.8% compared to August last year.
Producer prices for electricity rose 174.9% compared with August 2021 and by 26.4% compared with the previous month.
Excluding energy, the year-on-year rise in producer prices came in at 14% in August.
Producer prices for intermediate goods also rose significantly, up 17.5% on the year, driven mainly by a 19.9% surge in metals prices.
There’s more at the link.
Note that these are producer prices, not consumer prices. Those are downstream of producer prices, and will almost certainly reflect even higher increases. There’s no sign that producer or consumer prices will be brought under control anytime soon: rather the opposite, in fact. Just look at Germany’s Producer Price Index from 1980 to 2022 inclusive, courtesy of Quoth The Raven this morning. Click the image for a larger view.
That last bit doesn’t look very healthy, does it? Sundance points out that this is “the highest jump in prices in the history of the German economy” since formal records began to be kept in 1939.
The statistics behind the energy impact upon the German economy, the largest economy in the European Union, are almost unfathomable in scale. There is no way for the German industrial economy to continue with this level of price pressure. Stick a fork in the current creation of German industrial products and exports, the inflection point of feasibility for continued production has been crossed. They are done.
. . .
What does this mean in practical terms?
Firstly, it means the people within Germany and the larger EU will not be able to afford goods if the increased price to manufacture them is passed on to customers. German industrial goods, including the heavily dependent auto sector, will hit the market at double the price from last year. Exported goods, again assuming the government doesn’t provide some sort of subsidy to offset, would also double.
Secondly, it means the prices of used goods will increase in value. With imported vehicles holding that scale of increased manufacturing price, I would expect to see German automobile dealers in the U.S. sending out incentives to purchase used BMW’s, Audi’s and Mercedes for the products that are not produced in North America.
Lastly, on a global scale, Germany is dependent on selling industrial equipment to Asia and North America in the manufacturing sector. With declining demand for finished products -the result of inflation- there was already a lowered demand for machinery, machined tools and heavy equipment. Downward pressure due to a lack of demand, combined with upward price pressure to manufacture the industrial products, creates an even worse scenario.
Right now, Germany is on the cusp of a full-blown economic meltdown…
Again, more at the link.
Note that as of July this year, Germany was the USA’s fifth-largest trading partner. Also, last year, Germany accounted for more than one-fifth (21.3%) of the European Union’s gross domestic product. If Germany’s economy tanks, so does that of the EU as a whole; and if the USA loses, not just Germany’s contribution to our trade, but also much of the EU’s, we’re deep in the hole ourselves.
Bottom line? If you want any German product – a vehicle, electronics, whatever – order it now, while supplies are still available. It’s highly unlikely they’ll stay that way. Furthermore, don’t plan on travel to Germany in the near future, until the situation becomes clearer.
We’ve talked about hyperinflation in the Weimar Republic during the 1920’s on three previous occasions here. I suggest you follow those three links to learn more . . . because if Germany can’t bring energy prices under control, I suspect it’ll be well on its way to experiencing the same disaster again.