The country recorded its highest inflation rate in 40 years
Julia Neumann is struggling to keep her crêpe stand on the market in Nuremberg running as the gas that fires her hotplates doubles in price. Julia Kresser, the florist next door, has similar problems: gas is needed to heat the greenhouses where her flowers are grown, and diesel prices are up for the lorries that deliver them. Both women are battling to keep prices low as more and more German consumers are beginning to feel the squeeze of a mounting economic crisis.
The figures released by Germany’s Federal Statistical Office on Wednesday make for grim reading indeed. Consumer prices have risen by 7.3% in the year to March 2021. This marks the highest inflation rate recorded for over 40 years, comparable only to the spikes of the 1970s when the price in crude oil shot up and caused economic turbulence in the West.
The tone struck by European Central Bank president Christine Lagarde when she spoke at an event in Cyprus this week was decidedly gloomy. Calling on Europeans to find “resilience in times of uncertainty”, she warned that the war in Ukraine is not just a human tragedy but “also a significant economic shock, owing to our proximity to Russia and our dependence on its gas and oil”.
This is particularly keenly felt in Germany, whose economic relationship to Russia is impossible to untangle at the speed that the moral and economic circumstances might demand. While Berlin has now managed to source some gas from elsewhere, reducing imports from Russia to 40%, the country is still hugely exposed to price fluctuations triggered by actions in Moscow.
The government is at pains to reassure people that this will not lead to an existential crisis. Economy Minister and Vice-Chancellor Robert Habeck said that “there are currently no supply shortages” and that storage tanks were still a quarter full. But he also triggered the first of three warning stages and created a crisis group that will meet daily to assess the situation.
Meanwhile a report in Russia has suggested that the state-owned supplier Gazprom is “actually considering the possibility to stop gas deliveries to ‘unfriendly countries’ completely”. The deadline for paying for these ‘unfriendly countries’ to pay in roubles is today. Asked about this, Habeck remained defiant: “If Russia was to halt oil and gas deliveries, we will be able to deal with it.” But the third level of the state’s warning system includes rationing policies and sets out priority areas such as hospitals should there not be enough energy supply to satisfy demand.
Germans are also feeling the pressure at the petrol pump where prices have reached record highs. Diesel is now €2.20 a litre, leading industry experts like Frederick Beckmann, who owns the garage chain Q1, to warn that if Germany runs out of diesel, “millions of cars, buses, lorries, tractors, machinery, refuse trucks and some trains” will grind to a halt, “and with it also many parts of our economy”. There is, of course, a worldwide fuel crisis, but again Germany is particularly vulnerable to Russian whims as it imported 30% of its diesel from there last year.
What’s more, Germany imports steel, timber, grain, concrete, car parts, corn, cooking oil and many other products from Ukraine and Russia, which has led to shortages and sharp price increases since the invasion, exacerbating the pre-existing strains from the pandemic. In some parts of Germany it is difficult to buy flour and other affected products as people have begun to stockpile again.
While many of the problems Germany currently experiences are global issues, its dependence on Russia has exposed it particularly sharply to the immediate effects of the war in Ukraine. Lagarde was right to end her speech with an uncharacteristically sharp warning: “The longer the war lasts, the greater the costs are likely to be.”