Fewer companies are raising prices: IFO Institute expects inflation to fall

Germany groans under the high inflation.

Fewer companies are raising prices: IFO Institute expects inflation to fall

Germany groans under the high inflation. However, the IFO economic experts are forecasting an easing in the second half of the year. Because fewer companies are planning to increase their prices further. Retail is an exception.

The IFO Institute sees the first signs of a slowdown in inflation in the second half of the year. The reason for this is that on balance fewer companies want to raise prices, as the Munich economic researchers said, citing a survey. This balance - the percentage of companies that want to raise prices minus the percentage that wants to lower prices - is currently 57.8, the second highest value since 2005, said IFO economics chief Timo Wollmershäuser. "But the trend suggests that the monthly rates of inflation will fall from over 7 percent to under 6 percent in the second half of the year."

For the year as a whole, he expects around 6 percent. The decline in price expectations is affecting almost all sectors. There was only a slight increase in retail. It now also has the strongest tendency to increase prices: Here the proportion of companies with price increase plans outweighs those without by 77.4 percentage points. In wholesale the overhang is 68.1 percentage points, in industry it is 67.4 points. This is followed by construction with 56.9 and service providers with 46.7 percentage points.

The IFO Institute does not ask how much companies intend to raise their prices. The price expectation index had risen almost continuously since a corona hole in 2020, when it briefly became slightly negative. In the second half of 2021, it had then reached levels above 40 points for the first time in a long time, before reaching a long-term high of 61.8 last month. If all the companies surveyed intended to increase their prices, the balance would be plus 100 points. If everyone wanted to lower their prices, it would be minus 100.

Despite many risks, the mood in the German economy brightened overall in May. The Ifo business climate index rose to 93.0 points from 91.9 points in the previous month and thus for the second time in a row. From January to March, the economy grew by 0.2 percent. In the current second quarter, however, gross domestic product could shrink due to the war in Ukraine, high inflation and the corona lockdowns in China.