The Impact of the Covid-19 Pandemic on Inflation Dynamics in Germany


Term Paper, 2021

15 Pages, Grade: 1,7


Excerpt

Table of Contents

List of Abbreviations

List of Figures

List of Formula

1 Introduction
1.1 Background and Relevance
1.2 Objectives

2 Basics of inflation rate and consumer price index
2.1 Definition consumer price index and inflation
2.2 Cause and consequences of inflation
2.3 Corona pandemic

3 Measurement and Data
3.1 Challenges of price survey in the corona pandemic
3.2 Procedure of pricing in the Corona Pandemic
3.3 Consumer price index - all categories

4 Results

5 Conclusion

Bibliography

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: Consumer Price Indices

List of Formula

Formula 1: Calculation of the Inflation rate

1 Introduction

1.1 Background and Relevance

People are surrounded by headlines “More than 5000 Covid-19 patients in intensive care”.1 2 Due to the Corona pandemic, the daily life of the people is limited to their safety. Considering the economic consequences, many sectors are at risk, for ex­ample, the international division of labour and the industry. The Institute for Eco­nomic Research ifo informs that the most affected are the retail, hotels, and restau- rants.2 However, has the Corona crisis also affected prices? The Federal Statistical Office answers this question with yes, when it says that the Corona crisis has influ­enced prices at various economic levels. This means that there is a price influence from import to production to trade and then finally to the end consumer and export. On the world market there have been strong price reductions, which affect the con­sumer price. In connection with this, we see a change in the inflation rate, which was 0.9% in April 2020 and increased by 0.4% just one month later.3 But is this kind of inflationary change good or bad for our economy? It is a well-known fact that a low inflation rate is good for the economy while a high rate is bad. The reason is that at a high inflation rate the citizens lose faith in the currency and the purchasing power decreases significantly.4 Prices have risen steadily due to a shortage of supply, es­pecially for pandemic items such as protective masks and disinfectants, and for med­icines such as ibuprofen and paracetamol. All of which are largely manufactured in China.5

1.2 Objectives

The goal of this assignment is to discover the impact of the corona pandemic on consumer prices. In addition, the paper will summarize the most important aspects of the Corona pandemic and provide information on the definition of the inflation rate.

2 Basics of inflation rate and consumer price index

2.1 Definition consumer price index and inflation

The consumer price index, which is an economic indicator, is used to measure the average price trend of services and goods and by considering the average consumer behaviour of private households and a representative selection of consumer goods offered in domestic markets also referred to as the basket of goods.6 The representa­tive shopping basket is compiled virtually by the Federal Statistical Office and con­tains the average goods and services purchased. Product groups are, for example, water, food and leisure. The basket of goods is adjusted every 5 years because the buying behaviour of consumers changes.7 Based on the data, 350,000 individual prices for about 750 goods are recorded for 190 communes. The harmonized con­sumer price index measures price stability within the euro area and is collected by the Statistical Office of the European Community also called Eurostat. The recording also takes place monthly.8 The consumer price index is the basis for the calculating of the inflation rate and is the general increase in prices of goods and services. The following formula 1 illustrates once again the factors on which the inflation rate is calculated.

Formula 1: Calculation of the Inflation rate

Abbildung in dieser Leseprobe nicht enthalten

Source: David Gerginov, Inflationrate, 2020, https://www.gevestor.de/details/inflationsrate-678544.html, accessed on 25/12/202.

In a market economy prices can change constantly, e.g., one price increases while another price for a good decrease. It is important to emphasize that Inflation is defined as an increase of goods in general. The inflation does not consider the price increase of just one single product.9

2.2 Cause and consequences of inflation

There are many reasons for inflation such an increase in consumer demand for cer­tain goods which has a price increase as a consequent. Admittedly the impetus for the price rise comes from the demand side but the direction should also be consid­ered as their different views. One the one hand there is an increase in the price level from the private households, domestic companies, the state or even from abroad. Furthermore, an increase of production costs is the reason for higher sale prices on the market and a reason for the cost pressure inflation. One characteristics of the pressure inflation is that the costs do not belong to the production, but to the employ­ees. Considering the central bank and the mission to improve liquidity on the market, it puts more money on the market and thus also creates inflation. One of the important points of inflation is the speed of circulation of the money, for example, if the money is not used to buy goods but lies on the current account, we can consider a circulation speed of zero.10 Based on the European Central Bank, the inflation rate should be just around two percent to maintain price stability.11

2.3 Corona pandemic

The novel coronavirus Stars-2 has infected 3 million people worldwide. Looking back, the virus was identified in 1960. The name comes from the latin and means crown orkran, because the optics under the microscope remind of a crown. Humans and animals can be infected with the virus. Considering the origin of the virus, it leads to the Asian bats, but it has not yet been proven. Infection with the virus can be fatal.12 The typical symptoms are dry cough, shortness of breath, cold, muscle and joint pain as well as sore throat and headache. It is now clear that Covid-19 mainly affects the respiratory tract. These syndromes also occur with flu or cold, so it is difficult to de­termine the disease based on the syndromes. Also, to be considered is that fever is the most common symptom and that why fever is always measured when a person enters the workplace or at the airport. It is obvious that the use of the data of the measurement results are to identify infected individuals and prevent the further spread of the virus. In general, all age groups can be infected with the virus, but people in the older age group of 60+ are particularly at risk, because they already suffer from certain diseases. In addition, there is no difference between men and women. The risk of contracting the coronavirus is the same for both groups. In sum, 80% of the affected people do not feel any signs of the disease, while there are also people with severe pneumonia, who even need a respirator.13 The data collection comes from the Robert Koch Institute (RKI), which issues regular situation reports. Based on the latest situation report for Germany dated Dec. 26, 2020, there were 1,627,103 confirmed cases of which 29,422 people died from the virus and 1,223,700 people were seen. The data are the cumulative values. If only the single day is con­sidered, 14,455 new cases and 240 new deaths were reported. In addition, there were a total of 5,535 Covid-19 cases in the intensive care on 26.12.2020, an increase of +147 from the previous day.14

3 Measurement and Data

3.1 Challenges of price survey in the corona pandemic

Price collection in times of the Corona crisis faced major challenges. As early as February, there was increased demand for hygiene products and certain foodstuffs. Consumer price records the price change between two survey dates, but some items were in very high demand, so they were quickly out of stock. The increased demand made the price survey more difficult. In order to collect prices, it must be possible to visit the stores, which was very difficult because statistical offices were limited in their work either by infection with COVID-19 or by protective measures. Furthermore, pol­icies have made price collection more difficult. On March 16, 2020, the federal and state governments imposed protective measures, including the closure of many stores. This refers to the fact that cultural events and the use of sports facilities such as gyms were not possible. In addition, among other things, fashion stores and fur­niture stores were closed. This meant that there were increased price losses. At the same time residential rents, household energy and fuel were not affected by the re­strictions. These listed goods and services influence the price development espe­cially because of the weighting part in the consumer price index. Furthermore, phar­macies, gas stations and grocery stores were not affected by the Corona measures, which is why price collection was unproblematic here. Another challenge was that restaurants were only allowed to offer their food for pickup or delivery. This was not a normal condition, as service was not included. If we look at the air travel and all­inclusive tours, there was a travel restriction because of the Corona pandemic, so the travel sector was almost completely at a standstill. The same was observed in hotel accommodation and bus transport. It should be mentioned that price cancella­tions are not uncommon in the coverage. Often these failures occur in seasonal items, such as fruit. Further challenges lie in the methodical recording of, for exam­ple, refunds of concert tickets or preschool contributions. Furthermore, hygiene sur­charges were added. Another challenge is the limited quality of services in terms of performance. This includes, for example, the length of stay in swimming pools or the restriction of the number of visitors.

[...]


1 https://www.welt.de/vermischtes/article222523568/Corona-Hoechstwert-962-Corona-Todesfaelle- binnen-24-Stunden-gemeldet.html, accessed on 23/12/2020.

2 See Ragnitz, J., Langfristige wirtschaftliche Auswirkungen der Corona-Pandemie, 2020, p. 28-30.

3 See Statistisches Bundesamt, Wirtschaftliche Auswirkung der Corona-Pandemie, 2020, p. 23.

4 See https://www.gevestor.de/details/inflationsrate-678544.html, accessed on 23/12/2020.

5 See https://riv.de/auswirkungen-der-coronavirus-pandemie-auf-die-preisentwicklung-inflation-oder- deflation/, accessed on 23/12/2020.

6 See Nierhaus, W., Inflation - wie gemessen, 2001, p. 67.

7 See https://www.gevestor.de/details/inflationsrate-678544.html, accessed on 25/12/2020.

8 See Nierhaus, W., Inflation - wie gemessen, 2001, p. 67.

9 See https://www.destatis.de/DE/Themen/Wirtschaft/Preise/Glossar/inflation.html, accessed on 25/12/2020.

10 See https://www.inflation-deutschland.de/inflationsursachen.html, accessed on 25/12/202.

11 See https://www.gevestor.de/details/inflationsrate-678544.html, accessed on 25/12/2020.

12 See https://www.zusammengegencorona.de/informieren/basiswissen coronavirus/#faqitem=af579f12 1f12-505d-9051-39c94ba1d55b, accessed on 27/12/2020.

13 See https://www.zusammengegencorona.de/informieren/fieber-husten-unwohlsein/, accessed on 27/12/2020.

14 See Robert Koch Institut, Lagebericht, 2020, p. 1-2.

Excerpt out of 15 pages

Details

Title
The Impact of the Covid-19 Pandemic on Inflation Dynamics in Germany
College
University of applied sciences Frankfurt a. M.
Grade
1,7
Author
Year
2021
Pages
15
Catalog Number
V1292435
ISBN (Book)
9783346760258
Language
English
Keywords
Corona, Covid-19 Impact Inflation
Quote paper
Lejla Rahe (Author), 2021, The Impact of the Covid-19 Pandemic on Inflation Dynamics in Germany, Munich, GRIN Verlag, https://www.grin.com/document/1292435

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