The hope of some relief for the purse is becoming more and more distant.

Not long ago, economists were still betting that consumer prices would not rise quite as much in the coming year - now the pendulum is swinging in the opposite direction.

In its economic forecast presented on Monday, the Munich-based Ifo Institute predicted an average inflation rate of 9.3 percent for the coming year.

Compared to the summer, when the forecast was 6 percentage points lower, this is a breathtaking increase.

Johannes Pennekamp

Responsible editor for economic reporting, responsible for "The Lounge".

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In the spring, the economic researchers from southern Germany are now even anticipating 11 percent inflation.

"As a result, real household incomes will fall sharply and purchasing power will drop noticeably," says the forecast.

That doesn't bode well for growth.

After expected economic growth of 1.6 percent in the current year, economic output will shrink by 0.3 percent in the coming year.

Economists do not expect the economy to normalize until 2024, with growth of 1.8 percent and inflation of 2.5 percent.

The Ifo Institute is thus joining the general negative trend.

Last week, the economic researchers from Halle, Kiel and Essen had already cut their forecasts significantly and announced that prices would continue to rise.

Compared to the 8.7 percent inflation in the coming year (Kiel) and 9.5 percent (Halle), the Ifo expectations are at a similar level, only the researchers from Essen expect “only” 3.5 percent in 2023.

Prices are rising across the board

The large differences can be explained by the fact that the main driver of inflation is high energy prices as a result of the Russian attack – and these are difficult to anticipate.

It is neither precisely foreseeable how politics will intervene in the electricity and gas market and thus dampen prices, nor is it clear how the strongly fluctuating prices on the energy exchanges will continue.

The institutes therefore refer to the enormous uncertainties with which their predictions are based.

That's always the case, but it's especially true this winter.

On the one hand.

On the other hand, they are not fishing completely in the dark when it comes to price developments.

In their analysis, the Kiel economists explained exactly how they came to the high inflation expectations.

The fact that energy prices will continue to rise is more than just a guess.

Rather, the researchers are looking at the so-called futures contracts, with which gas and electricity quotas are traded in the future.

With prices of up to 250 euros per megawatt hour for deliveries at the end of 2024, only a “gradual decline” can be expected.

These high prices are now gradually being felt by end consumers.

The researchers describe it as follows: At present, 80 percent of the prices are still calculated from the lower prices that utilities have secured in the past on the futures market.

They have to buy 20 percent in the short term on the so-called futures markets.

This results in a mixed calculation that only partially reflects the exorbitant price increases.

From this you can at least roughly deduce how to proceed.

While the spot market prices have increased tenfold compared to their long-term average, the procurement costs in the mixed calculation have so far increased fivefold, write the economists.

The more delivery quantities the suppliers now have to procure via the spot market, the higher their procurement costs are at the moment.

"Of course, these will gradually adjust to the level of the spot market if - as currently expected - the prices there remain at a high level for longer.

What does that mean bottom line?

According to the Kiel researchers, the gas and electricity prices account for only 2.5 and 2.6 percent of the consumer price index, respectively.

Despite this low weight, the energy costs will become a decisive factor due to further foreseeable increases.

“The contributions of gas and electricity to inflation in 2023 – without policy measures to cap prices – would be 3.9 and 2.15 percentage points, respectively,” the economists write.

The electricity price cap could - if it reduces electricity prices by 50 percent next year - dampen inflation by 1 percentage point again.

What must not be forgotten in these considerations: the high energy prices not only make life more expensive directly, but also indirectly.

Companies increase their prices when their furnace, heated hall and production bills increase.

Expensive rolls and breads give a foretaste of it.

These effects then drive consumer prices even more and will also only be reversed when energy becomes cheaper again.