Despite falling inflation and a gradual easing of the cost-of-living crisis in Germany, consumers in Europe’s largest economy have yet to return to the marketplace—due to reasons deeply rooted in both recent experience and historical memory.
Inflation in Germany has ranged between 1.6% and 2.6% over the past 12 months, significantly lower than the 70-year high seen in 2022 following Russia’s invasion of Ukraine and the ensuing energy crisis. However, prices remain roughly 20% higher than in 2020, straining household budgets and discouraging spending.
Fear of Inflation Greater Than Fear of War
In a country with a strong sensitivity to inflation, Germans fear rising prices more than war. According to a recent survey conducted by a military research institute, inflation is considered a greater threat than a potential conflict between the West and Russia.
This concern is reflected in consumer sentiment surveys. The latest data from GfK and NIM (Nuremberg Institute for Market Decisions) shows that consumer confidence remains extremely low, despite improving economic indicators. At the same time, savings rates are rising, as consumers favor financial security over spending.
The Gap Between Reality and Perception
The “crisis psychology” seems to have left a lasting impact. Although official inflation for 2024 stands at just 2.2%, a study by the IW Institute in Cologne found that the public perceives inflation to be over 15% on average. This gap is particularly pronounced among voters of extreme parties such as the far-right AfD and the newly formed left-wing BSW, highlighting the influence of political rhetoric and polarization on public expectations.
“It could take one to five years for consumer perception to align with reality,” says Matthias Diermeier of the IW.
Return to the Market? Not Yet
The figures speak for themselves: retail sales in Germany have declined for three consecutive months—March, April, and May. The economy has remained stagnant or in recession for two years, and exports face pressure due to potential U.S. tariffs. All this creates an atmosphere of uncertainty that deters a return to consumption.
In a striking, albeit extreme, example of the public debate around prices, members of the Green Party recently proposed imposing a price cap on ice cream during a heatwave, to ensure children from poorer families wouldn’t miss out on a simple summer treat.
The Weight of History
Fear of inflation is nothing new in Germany. The traumatic experience of hyperinflation in the 1920s, which contributed to the rise of the Nazis, is deeply etched into the country’s collective memory. This historical legacy, combined with the shock of 2022, makes it difficult for consumer confidence to bounce back.
Germany’s economy—and the broader Eurozone—needs a boost in private consumption to recover. With the manufacturing sector showing prolonged weakness, hopes for recovery now rest with consumers. But as Lisa Felkel from the Federation of Consumer Organizations notes:
“When the media keep repeating for years that everything is getting more expensive, people believe prices are still rising—even if they’ve stopped.”
Under such psychological and economic weight, a rebound in consumer spending in Germany appears to be slow and gradual—certainly not a rapid return to pre-crisis behavior.
