Official inflation in Germany has reached a staggering 4.5%. Germany hasn’t seen such price increases in nearly thirty years. One of the leading causes of the inflation is the increase in energy prices, which are dependent on the price of natural gas. Energy prices have risen 18.6% year over year.

The Money Counter, by Pompeo Massani

Printing has consequences

The European Central Bank has been printing money for years now under the guise of ‘quantitative easing’, or ‘loose monetary policy’. Regardless of what name you give it, the effect is the same. The amount of money in the economy increases, independent from any real economic growth and thus independent from any real increase in production. Whereas the amount of goods produced stay more or less the same, the money supply expands rapidly. The Germans are now catching on to this problem.

Why do they print?

There are several reasons for printing money. A desire to hand out free money to those unwilling to work, as well as those newly arriving into Europe, is one reason. Yet, the euro itself creates further problems. With the countries in the south of Europe unable to devalue their currencies, they run into issues with their government debt. So the ECB has to buy their government bonds to keep interest rates on those bonds down, thereby pushing down all interest rates in the EU, and expanding the money supply. Somehow, people believed this would not cause inflation?

Wholesale inflation in Germany

Wholesale prices in Germany rose with a whopping 13.2%. That’s the fastest increase since 1974 during the oil crisis. Prices are pushed upwards by increased prices of raw materials and intermediate products. This begs the question whether this inflation is ‘transitory’, as they like to say, or whether we are only seeing the start and even bigger price shocks are coming in the following years.

Who will suffer?

Inflation will hit hardest on the Germans living from government assistance, such as pensioners. Their handouts will likely not be increased accordingly to match the true inflation spikes. The others that are hit are the German savers. Inflation punishes the ones living within their means, and rewards those that take on debt.

Impact of migrants on inflation

One of the reasons that wages in Germany are stagnating is of course the import of workers from abroad. Migrants that do work increase the supply of labor, thereby suppressing wage increases. Migrants that don’t work cost the government tons of money, thereby putting pressure on taxes. In both cases, the German worker loses. The great capitalists that own the businesses do win, though only in the short term. If only the wages would rise at the same rate as the inflation, then at least that group would not have to suffer from inflation beyond their savings. Unfortunately, this is not the case. Inflation will make everyone poor except for the 1%.