Germany's inflation hits highest in 26 years... Global inflation concerns grow

July Consumer Prices Rise 3.8%... Major Food Companies Including Nestle Announce Price Increases

[Asia Economy Reporter Byunghee Park] The rising inflation rate is expected to be the biggest variable in the global economy in the second half of the year.

Germany, Europe’s largest economy, saw its consumer price inflation rate in July soar to the highest level since the start of the European Union’s integrated statistics in 1996, raising concerns about global inflation. Global food and beverage and alcohol companies such as Nestl?, Danone, Diageo, and Anheuser-Busch InBev (AB InBev) have announced price increases for their products in the second half of the year, citing rising raw material costs.

On the 29th (local time), the German Federal Statistical Office announced that Germany’s consumer price index in July rose 3.8% compared to the same month last year, marking the highest increase since the EU’s integrated statistics began in 1996. It is also the first time in 16 years since August 2008, just before the global financial crisis, that the year-on-year inflation rate exceeded 3%.

Germany’s July inflation rate is nearly double the European Central Bank (ECB)’s monetary policy target of 2%, which is expected to intensify debates surrounding the ECB’s quantitative easing policies.

The sudden surge in Germany’s inflation in July is partly due to the application of a reduced value-added tax (VAT) rate, which was lowered by 3 percentage points in July last year. The German government had reduced the VAT from 19% to 16% in the second half of last year to revive consumption weakened by the COVID-19 crisis, but restored it back to 19% starting this year.

Holger Schmieding, an economist at Berenberg Bank, said, "The restoration of the VAT rate has contributed to pushing inflation up by 1 percentage point." Jens Weidmann, President of the German Central Bank, said, "The consumer price inflation rate could approach 5% by the end of the year," adding, "There will be some temporary factors at play."

Additionally, the expected rise in prices of major food items is anticipated to further fuel inflationary pressures going forward.

Global food companies such as Nestl? have reported increased sales as the global economy rebounds, but they also noted rising costs for raw materials, packaging, and transportation, prompting them to announce price hikes in the second half of the year.

Mark Schneider, CEO of Nestl?, said, "We expect price increases to accelerate in the second half compared to the first half." Nestl? raised product prices by an average of 1.3% in the first half of this year. In particular, prices for dairy and ice cream products increased by an average of 3.5%, and bottled water prices rose by 1.6%. Thanks to the combined effect of price increases and sales growth, Nestl? recorded an 8.1% increase in net sales in the first half of the year. Although this was a rare sales growth rate in recent years, Nestl? noted that rising production costs are putting pressure on profit margins.

AB InBev, which owns multiple beer brands including Korea’s OB Beer, Budweiser, and Hoegaarden, reported a 28% surge in sales in the second quarter, reaching $13.54 billion. However, it stated that barley prices, a key beer ingredient, have risen, and due to a surge in can demand in the U.S., it has had to import cans from elsewhere. The company said it is considering product price increases in light of these rising production costs.

Diageo also reported an 8.3% increase in sales for the current fiscal year but noted that operating profit margins in North America fell by 1.24%. It cited rising costs for raw materials such as corn and aluminum, as well as increased logistics expenses.

Danone, producer of yogurt brand “Activia” and bottled water “Evian,” announced it will raise prices across all product lines to maintain profitability. Danone has already increased prices in South America, Russia, and Turkey, and plans to gradually raise prices in North America and Europe, where it has long-term contracts with major retailers.

This content was produced with the assistance of AI translation services.