Prices : Germany

The standard of living depends not only on income but also on prices. Consumer prices are therefore a major domestic issue. The Federal Republic of Germany has not been able to evade worldwide inflation entirely in recent years. In the 1970s and 1980s prices fluctuated strongly, reflecting the sharp movements in the price of oil. Especially in the 1970s the cost of living in the old Federal Republic rose far too swiftly - at times by more than six percent annually. It then fell considerably, so that in December 1986, for the first time in almost 30 years, the cost of living was lower than it had been in the same month of the previous year. In the whole of 1986 the cost of living was 0.1 percent lower than in the previous year.

In later years, too, the Federal Republic managed quite well by comparison, its inflation rates not rising above three percent. After mid-1990, however, heavy demand in connection with the country’s unification as well as steep increases in wages and taxes to finance the recovery of the economy in eastern Germany accelerated prices with the result that the inflation rate in 1992 was about 5.1 percent. The government and especially the Deutsche Bundesbank give high priority to monetary stability. This policy has proved successful: In 1994 the inflation rate dropped to 2.7 percent, in 1 995 to 1.8 percent, and in 1 996 to 1.5 percent.