Iran war fuels fears of new inflation wave among German consumers

In Germany, nine out of ten people expect the cost of living to increase in the coming months, according to a survey carried out in March by YouGov on behalf of Postbank.

Of the 2,028 people surveyed, 32.2% anticipate significant price increases.

“Many people still remember very well the sharp price rise caused by Russia’s invasion of Ukraine in 2022,” said Ulrich Stephan, chief investment strategist for private and corporate clients at Deutsche Bank, which owns Postbank.

“Current developments in the Middle East show that geopolitical conflicts once again have the potential to fuel inflation through rising energy prices.”

Many economists also expect inflation to accelerate in the coming months due to rising oil and gas prices, although they caution that the extent of that rise will depend on how long the war in Iran lasts.

The German inflation rate fell to 1.9% in February, falling below the 2% target set by the European Central Bank. The Federal Statistical Office will publish a first estimate for the month of March on Monday.

Rising prices are already taking a heavy toll on many people: 12.8% of respondents say they are barely able to cover their daily expenses. Among households with net incomes below €2,500 ($2,900) per month, this figure rises to 23.5%.

Food costs are currently the biggest financial constraint for most respondents, cited by 69.4% as their biggest burden. Energy (48.7%) and transport (45.6%) were also frequently among the top three cost pressures.

“The fact that more than half of those surveyed now believe their financial situation is worse than a year ago, and many expect little relief, is also a consequence of the surge in inflation in 2022,” Stephan said.

“Prices then increased considerably and remain perceptible in everyday life. New crises further reinforce this perception.”