How will the cost of living change in Germany in 2022?

The last two years have been a challenge for many people in Germany not only when it comes to health, but also financially. 

With many industries having to close or partially shut, employees having to go on the Kurzarbeit (reduced hours) scheme and the general cost of living going through the roof, it's been financially difficult for many people. 

But there are a few factors that suggest things will improve in the coming year and that consumers will have more money - or at least not less - in their wallets again.

What's the outlook?

In a study published in December, Filip Vojtech from the market research company GfK predicted that in 2022 purchasing power will increase significantly for the first time since the beginning of the Covid pandemic.

The market researchers believe that consumers' purchasing power will increase by 4.3 percent in the coming year. Even after deducting the inflation rate, which is expected to be 2.5 percent according to the forecasts of leading economic research institutes, there would still be some additional purchasing power left over.

However, economic expert Torsten Schmidt from the RWI - the Leibniz Institute for Economic Research in Essen - is not quite so optimistic. He believes that real wages will tend to stagnate in 2022. But even that would be an improvement after the noticeable decline this year.

Wage hikes for people on lower incomes

Some people can look forward to above-average increases in their pay packets. Low-income earners are set to benefit in 2021 as their statutory minimum wage will be raised on January 1st - from the current €9.60 to €9.82 per hour.

On July 1st, it will go up again by another 63 cents to €10.45 per hour. Together, this means an increase of almost 9 percent.

It may go up even more because the coalition - made up of the Social Democrats, Greens and FDP - have agreed to raise the minimum wage to €12 an hour. However, it is still unclear when this will be implemented. 

Trainees in Germany can also look forward to more money. The statutory minimum training allowance in the first year of training will increase from €550 per month to €585.

READ ALSO: What will the new German government mean for your wallet?

Photo: picture alliance/dpa/dpa-Zentralbild | Patrick Pleul

Unemployment benefits

From January 2022, all those who are dependent on social assistance and unemployment benefit II (also known as Hartz IV) will receive - a little - more money.

The standard rate for single adults will increase by three euros to €449 per month. The rates for children and young people will also go up.

Kurzarbeit

Kurzarbeit, which allows employers to reduce hours for employees while keeping them on the payroll and has been used throughout the pandemic, has been extended to the end of March 2022.

And there are higher allowances on the cards: 70 percent of people’s monthly net salary is to be paid from the fourth month of receipt – 77 percent if they have a child living in their household. From the seventh month onwards, it will move to 80 percent (and 87 percent for a household with a child) of the monthly net salary.

Kinderzuschlag

The child supplement (Kinderzuschlag), a benefit in addition to child benefit for low-income families, will also be increased, albeit only slightly. It will go up by €4 from €205 to €209 per month per child.

Pensions

The approximately 21 million pensioners in Germany can also expect more money from July. The only question is: how much more? Labour Minister Hubertus Heil (SPD) said at the end of November that he expected "pensions in Germany to increase by 4.4 percent from July 2022."

That sounds like a lot, but it is less than was forecast last summer - when there was talk of pension increases of 5.2 percent in the west and 5.9 percent in the east.

Electricity costs 

The German government is to lower the levy on electricity consumption from next year to help ease the burden on consumers.

The Renewable Energy Act (EEG) surcharge, used to fund the expansion of solar and wind energy plants, will fall by more than 40 percent to 3.723 cents per kilowatt hour from January 1st.

It is the largest reduction since the green levy was introduced in 2000 to help Germany transition towards cleaner energy sources.

But as The Local reported, it may be that the reduction has little impact on energy bills due to the rising prices of energy. Many people will have already received notice that their electricity costs will be going up from next year. 

How will changes impact your electricity bills? Photo: picture alliance/dpa | Sina Schuldt

Petrol and heating

Some other things are likely to become more expensive in the coming year, like filling your car up with petrol. 

At the beginning of 2022, the CO2 tax will increase from €25 to €30 per tonne of carbon dioxide emissions released by the transport and heating sectors.

The tax was introduced in January 2021 as part of Germany's strategy to move away from fossil fuels and towards renewable energy.

According to the North Rhine-Westphalia consumer centre, the 2022 tax increase will raise the price of petrol by 1.5 cents per litre, heating oil and diesel by 1.6 cents per litre and natural gas by 0.1 cents per kilowatt hour.

READ ALSO: How households in Germany can tackle rising energy costs

Tobacco tax

Smokers in Germany will also find it more expensive: the tobacco tax for a pack of 20 cigarettes will increase by an average of 10 cents in 2022. The manufacturers are likely to pass on the higher costs to customers.

From July 1st, substances for e-cigarettes will also be subject to tobacco taxation for the first time. A 10-millilitre liquid, which currently costs roughly €5, is to be taxed €1.60 more in 2022, rising to €3.20 by 2026. Tobacco for water pipes will also be taxed at a significantly higher rate in the future.

Posting letters

There's another slight price increase on the cards: Deutsche Post will raise the cost of posting letters and packages on January 1st. Postcards will cost 70 instead of 60 cents, standard letters 85 instead of 80 cents and other services will also become more expensive.

This is not the first price hike. In the past 10 years, post in Germany has become significantly more expensive. In 2012, sending a standard letter nationally cost only 55 cents.

READ ALSO: German postal service set to hike prices in 2022

Better rights for consumers

This is another change that should help people save money in Germany. Anyone who concludes a contract on the Internet will be able to terminate it more easily in future.

As of July 1st 2022, so-called continuing obligations (Dauerschuldverhältnisse) will need a 'cancellation button', which consumers can press to get rid of their contracts without having to do a lot of searching for documents and writing letters.

And from 2022 anyone who buys a product that later turns out to be faulty should have a better chance of getting their money back. Consumers will have their rights strengthened by the warranty period being extended from six months to one year.

What about the prices of everyday goods?

There is a small consolation forecast, according to experts. Overall, the inflation rate is expected to drop noticeably in 2022. In its latest economic report, the RWI estimates there will be a price increase of "only" 2.6 percent for 2022 - after an inflation rate of 3.2 percent this year.

So that means the cost of buying tomatoes, eggs and bread should ease up a bit, or at least we hope so. 

READ ALSO: Why is everything suddenly getting so expensive in Germany?