Companies Take the Hit as Inflation Returns

Inflation in Germany has returned, but this time companies are shouldering the burden of rising energy costs.

The war in the Middle East and surging energy prices have pushed up headline inflation across the eurozone, with Germany's August rate reaching 2.9%, a full percentage point higher than its February rate.

While inflation is expected to rise further over the coming months, potentially moving above 3% by year-end, a return to double-digit rates seen in 2022 appears unlikely due to softer labor markets and dwindling pandemic savings.

The financial ability and willingness of consumers to pay higher prices are significantly lower than they were after the pandemic, limiting companies' pricing power. This is evident in sectors such as consumer goods manufacturing, where recent price increases coincided with falling volumes and lower turnover.