More Uncomfortable Signs of Inflation: German Wholesale Prices

Wholesale prices in Germany rose 5% in May over a year ago. This was the largest year-over-year increase since the 6.05% recorded in November, 2000. Moreover, most of the prices in the underlying components of the index are now showing signs of accelerating.

The increases in wholesale prices in Germany have, in recent years, been dominated by movements in the Raw Materials, Intermediate Goods and Recyclables category where the price of oil is recorded. The first chart shows the year-to-year percent changes in the Wholesale Price Index and the sub index of prices of Raw Materials, Intermediate Goods and Recyclables. Although the year-to-year increases in these latter prices had, in recent months, shown some signs of declining from the 13-15% increases of reached in late 2005, they have now reversed trend and rose almost 11% in May.

While the increases in the prices of Agricultural Products and Animals in late 2003 and into 2004 reinforced the impact of rising oil prices, the subsequent declines in these prices helped to mitigate the effect of the continued rise in oil prices. But now, these prices are once more beginning to rise and in May were 7.13% above May, 2005.

The deflationary tendencies in the prices for Consumer Goods began to lessen in late 2004 and, in the case of Machinery and Equipment, in mid 2005, as can be seen the second chart. Prices of consumer goods have been showing positive increases over year ago figures since August, 2005 and in May were up 1.3% over a year ago. Prices of machinery and Equipment are still declining, but in May the decline was only 1.73 % below a year ago compared with a year-to-year decline of 6.05% in April, 2005.

The prices of the Food, Drink and Tobacco have risen in April and May after a sharp fall in March. These prices are now rising at 2.4% a year. The prices of the Other Wholesale Trade component rose 3.2% over a year ago from 2.4% in April. These prices are shown in the third chart.