Germans' corona savings cushions are melting away

According to the Ifo Institute, inflation is eroding the additional savings accumulated by Germans during the pandemic. "The savings cushions from the Corona period have now melted away for many households," said Ifo's head of economic research, Timo Wollmershäuser, commenting on the latest analysis of bank balance sheets.

At the same time, consumer prices are likely to continue to rise sharply. "This means that private consumption will unfortunately fail to act as an economic driver in Germany for the rest of the year," Wollmershäuser concluded.

Household deposits at banks in Germany swelled strongly between the second quarter of 2020 and the first quarter of 2021. The reason: travel, restaurant visits and other leisure activities were not possible or only possible to a limited extent due to the pandemic. As a result, a lot of money ended up in the bank.

"If we take as a basis the average propensity to save in the five years before the outbreak of the Corona crisis, a good 70 billion euros more than usual was parked in bank accounts during this period," Wollmershäuser commented. But these so-called surplus deposits had been almost completely eliminated by the end of the first quarter of 2022.

And in the spring, he said, this trend continued at an almost unchanged pace. "High inflation is likely to have been a major driver of this 'desaving' by households," said Ifo's head of economic research Wollmershäuser.

German consumers are currently suffering from the highest inflation in decades because energy became significantly more expensive after the Russian invasion of Ukraine. In July, consumer prices were 7.5 percent higher than a year earlier, after inflation reached 7.9 percent in May, the highest level since the winter of 1973/1974.

Fuel discounts and nine-euro tickets are currently pushing down inflation for consumers, but these government aids expire at the end of the month. Experts therefore expect higher inflation rates of around nine percent in the fall.