Inflation expectations in Germany have risen to their highest level since the surveys began.

As the Deutsche Bundesbank announced on Monday, private households expected an average of 6.9 percent inflation for the next twelve months in April.

In March it was still 5.8 percent.

At 5.2 percent, the expected average inflation rate for the next five years was more than five percent for the first time since the survey began.

Christian Siedenbiedel

Editor in Business.

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The so-called "perceived inflation", i.e. the increase in prices observed in everyday life when shopping and, for example, when filling up with gas, has even reached completely different dimensions.

A study by Bank ING recently came to 14 percent.

After all, many everyday goods in Germany are now showing double-digit price increases compared to the previous year.

Heating oil rose particularly sharply by 98.6 percent, fuel by 38.5 percent and natural gas by 47.5 percent.

Food was 8.6 percent more expensive than in the same month last year.

The prices for edible oil and fats rose by 27.3 percent, for meat and meat products by 11.8 percent and for dairy products and eggs by 9.4 percent.

Inflation expectations are given more attention in monetary policy today than they used to be.

This is also related to the further development of economic theory in this area.

As expectations unanchor, inflation can continue to rise in worrying ways.

The mechanism works as follows: "Inflation expectations are 'anchored' when companies, trade unions and financial market participants expect long-term inflation rates that correspond to the definition of price stability," writes the Bundesbank in a report: "Then a central bank has committed itself convincingly and credibly to its goal .”

If, on the other hand, expectations become unanchored, there is a risk of high wage demands, which in turn can prompt companies to raise prices.

ECB sees no “unanchoring” of inflation expectations

For monetary policy, the European Central Bank (ECB) monitors both the inflation expectations of professional forecasters and the expectations on the capital market, as well as those of private households.

Those responsible for the ECB have already reported several times on an increase in inflation expectations in the euro area as a whole, but have mostly rejected any "unanchoring" of inflation expectations.

The head of the French central bank, François Villeroy de Galhau, has now said that the ECB can no longer ignore the fact that inflation expectations are also changing: “There are signs – including in the Banque de France company surveys – that these expectations are less and less anchored at 2 percent are.” This is an argument for tightening monetary policy in the near future.

One risk associated with high inflation expectations is a wage-price spiral.

If the view continues to prevail that inflation is not only so high temporarily, but over a longer period of time, and the central bank does not get it under control so quickly, more and more trade unions will also demand higher inflation compensation in collective bargaining rounds.

If higher wages can then be enforced, which is again an important question, then this can drive inflation further.