Despite rising prices, consumers are slightly reducing their budget for shopping. This is shown by the latest statistics in Germany and the USA. This means that people spend almost as much money in nominal terms as in the previous year - but receive fewer or inferior goods in return. The revival hoped for by the shopkeepers after the end of the corona measures was only a short flash in the pan.
Adjusted for inflation, German trade even recorded a dramatic decline: In June, real consumption was 8.8 percent lower than in the previous year. "This is the largest decline compared to the same month last year since the start of the time series in 1994," the statisticians said. In absolute terms, consumption fell by 0.8 percent. This means that Germans spent even less than in the previous month – contrary to what economists had expected.
A similar development can be seen in the USA: With the expiry of corona financial aid for private individuals, the willingness to consume is giving way. Real retail spending has been falling in the country for a year now.
According to the statisticians, customers in Germany save above all on food: the consumption of fashion fell by a good ten percent compared to the previous year - although it was already burdened by the pandemic measures at the time.
The frugality reflects the income situation of the households: while prices have increased significantly since the beginning of the year, incomes have hardly increased at all. Social benefits such as unemployment benefits have also not increased since January. At the same time, share portfolios and in some cases even real estate have lost value – while the rise in energy prices since the beginning of the Ukraine war has made driving more expensive and high additional payments for heating are expected.
A general end to the price increases in supermarkets is not yet in sight - despite the relaxation of some raw materials. Wheat currently still costs 50 percent more than at the beginning of the year. But it is a long way from the high for the year in May: At that time, however, it was 100 percent above the January level.
At the beginning of the Ukraine war, speculators had expected that a large part of the arable land would remain uncultivated. In fact, however, the harvest volume in the country is only falling moderately, since only harvest areas in the contested east are missing. Exports are also going better than expected: in June, despite the blocked Black Sea ports, a good half of the previous year's level of wheat flowed westwards via alternative routes, mainly by rail and via the Danube.
On Monday, the first Ukrainian cargo ship set sail across the Black Sea following an agreement on the transport of goods by sea. If the agreement holds, the world market price is likely to fall further. In addition, Russia is expecting a record harvest in its own country. The recent drop in oil prices is also relieving farmers and fertilizer producers.
According to HWWI, agricultural commodity prices in Germany fell by 3.1 percent in June compared to the previous month, but they are still almost half above the previous year's level.
But in retail, the slight relaxation only comes with unprocessed foods. Aldi, for example, recently lowered its meat prices. In the case of branded products, on the other hand, there are likely to be further price rounds: the manufacturers want to pass on their cost increases to retailers - also in order to maintain their margins.
However, this is only possible step by step in price negotiations with retailers. “The price increases are therefore likely to continue over the next few months. A lot is still to come for consumers,” says a manager of a medium-sized German brand manufacturer.
According to figures published on Monday by the BVE industry association, the German food industry saw sales increase by an impressive 23.9 percent to 18.2 billion euros in May 2022 - almost exclusively due to price increases, as the volume only rose by 3.3 percent.
Global corporations such as Unilever and Coca-Cola are also continuing to raise their prices significantly. This fits in with the strategy many manufacturers have been pursuing for a long time to position their brands at higher prices.
All in all, however, they are doing somewhat less well than at the beginning of the year in keeping their sales volumes stable. Both in Germany and in the USA, their customers are increasingly switching to the cheaper private labels of the trade. As a countermeasure, the US food manufacturer Kraft has announced that it will launch its own cheaper products and smaller pack sizes.
Not only that brings relief for consumers. In other areas, they could benefit from sell-offs: About You and Zalando, for example, have accumulated stocks that they need to get rid of. The two German online retailers are also affected by the fact that more people are shopping in the city centers again after the store closures have ended - although usually less than before the pandemic. In the US, this problem even affects retail giant Wal-Mart, which stocks too much fashion.
And something else is depressing the sale of goods: a change in consumer preferences after the end of the corona restrictions. Instead of goods, money is increasingly flowing into services and experiences. The wave of travel in the summer holidays is unbroken - also supported by the nine-euro ticket and fuel discount.
In the USA, this high spending on leisure time experiences gives observers hope that the lousy consumer mood will not inevitably lead to a recession. "There's a strong contradiction between how people describe their mood and how they behave," Moody's economist Zandi told the Wall Street Journal. This gap between attitude and behavior is bigger than ever when it comes to travel and gastronomy.
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