German economy set for rebound with boost in purchasing power

By the end of the current year, terms of trade are expected to return to their levels from before the outbreak of the COVID-19 crisis. One reason for this expectation is that the prices of most imported goods, particularly energy, have fallen sharply. Another is that exporters were able to pass on higher production costs, ifo Institute said in a press release.

Such terms-of-trade gains increase the scope for distribution and allow higher nominal wage increases for a given productivity trend without further fuelling domestic price inflation. As a result, private household incomes are rising more strongly than prices, so purchasing power is expected to increase and private consumption to rise gradually.

The inflation rate will continue on its downward trend. Many consumer prices are already rising only slightly over the course of the year, with some already falling.

ALCHEMPro News Desk (NB)