The war in Ukraine and the padlocks in China are leading to unusually high cost and price increases for German companies. Two out of five companies can pass on the highest costs to customers with little or no difficulty, according to a new study by the Institute for German Economics (IW).
Rising prices for energy, raw materials and intermediate inputs, as well as future higher labor costs, are now putting strong pressure on businesses in Germany. Consumers are also feeling the effects. However, not all companies are able to pass on the highest production costs to their customers – this is the result of an IW business survey, which was asked of more than 2,000 companies in June.
Higher costs for industrial companies
Final consumers feel the high price pressure directly through the high cost of energy, but also indirectly through the highest cost of production, from which companies suffer greatly: By the end of the year, 95% of the industrial companies that participated in the research expects higher energy costs, more expensive raw materials and inputs to have an impact on their own prices.
Therefore, approx 2/3 of industrial enterprises increase prices for their customers to a high or moderate degree. The remaining 1/3 see little or no opportunity to do so. The difference is particularly large in the construction industry: in addition to rising market prices for raw materials, high demand and a lack of skilled workers increase costs here, but only 1 in 10 companies in the construction industry can pass on this cost shock to customers to a large extent.
The situation is different for service providers: they do not need as much energy and raw materials – so their cost has not increased as much as that of industry. About 40% pass the increased cost to a high or medium degree and about half to a low degree. 8% can not pass on the highest cost at all.
“If companies get stuck with sharply rising production costs, this has serious long-term consequences.”, says study author and financial expert Michael Grömling. “Businesses do not then have the necessary equity to invest, mainly to shape the forthcoming structural change. Today’s cost shock should not be allowed to develop its own momentum – for example, through a sharp rise in labor costs.”
Source: Capital
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