The beginning of the war in Ukraine resulted in a considerable drop in business expectations of companies in Germany. For now, this trend has come to a halt. Compared to the low in April, the profit, sales and investment expectations are recovering considerably. Companies even expect an increase in investments and sales for this year. However, the continuing supply chain problems and the resulting cost pressure is a burden on the companies’ economic situation. More and more companies are passing along these costs to their customers: As the June report of the German Business Panel (GBP) shows, the number of companies planning to increase their prices is growing. The GBP at the University of Mannheim asks companies in Germany on a daily basis about the changes they expect with regard to their sales, profits and investments. Each month, the GBP publishes a report on current questions.
Increase in prices affects trade and processing industry
According to the current GBP report, the share of companies increasing their prices is particularly high in the trade industry and the processing industry. In these sectors, more than 85 percent of the companies (average in Germany: 76 percent) said that they plan to increase their prices in the next twelve months. The share of companies planning to rise their prices has considerably declined in the construction industry and is currently equivalent to the average level in Germany. “The interest rates are currently going up and the higher financing costs may reduce the demand and the prices”, say Thomas Simon, academic staff member of the GBP at the University of Mannheim.
The companies are increasing their prices in particular due to the rising energy costs. While only 48.5 percent of the companies not affected or only indirectly affected by the consequences of the war are planning to raise their prices, 73 percent of the companies affected by the rising energy prices are willing to do so. Disruptions to the supply chains as well as restrictions on business operations in Ukraine and Russia are increasing the probability for price increases by up to 10 percentage points.