Germans hesitant to spend amidst inflation decrease
Germany's economic landscape is experiencing a unique blend of low inflation rates and cautious consumer behaviour, primarily driven by growing economic uncertainty and increased propensity to save. This trend, which has been evident since mid-2025, has led to a significant decrease in consumer confidence and a simultaneous rise in saving rates [1][3][4].
The economic uncertainty stems from concerns about global factors, such as U.S. tariffs on European goods, causing consumers to delay discretionary spending and prepare for potentially challenging economic times [1][3]. Additionally, food prices, despite easing inflation overall, remain elevated, squeezing household budgets and reducing disposable income for other purchases [1][2].
Consumer sentiment and income expectations, while improving with solid wage agreements and moderate inflation, are being overshadowed by fears of future economic difficulties, encouraging saving rather than spending [1][4]. This cautious financial approach is further amplified by Germany's traditional high savings rate and cautious financial habits [1][4].
Lisa Voelkel, from the Federation of German Consumer Organizations, stated that inflation rates are currently around 20% over 2020 levels [2]. This sentiment is echoed by consumers who complain about elevated costs of electricity, groceries, and leisure activities [2].
The music festival scene is a clear example of this trend. A three-day music festival pass has more than doubled in cost since 2019, reaching €220 (US$260) [2]. Alkim, a Turkish aeronautics student, has had to cut back on his diving hobby and only buys the cheapest pasta to make ends meet [2].
Inflation in Europe's biggest economy has fluctuated between 1.6% and 2.6% over the past year [5]. The European Central Bank is expected to hold interest rates steady today for the first time in almost a year [6]. However, persistent inflation has fueled calls for an "ice cream price cap" limiting the cost of a scoop to 50 cents [6].
A pick-up in consumer spending is crucial to help revive the eurozone's traditional powerhouse economy and offset prolonged weakness in the manufacturing sector. However, consumers' perception of inflation is significantly higher than the actual rate, with an average estimate of 15.3% in December 2022, while the actual rate was 2.2% [5]. This misperception, particularly pronounced among supporters of radical parties like the AfD and BSW, creates a gap between consumer perception and reality [5].
Germans have a deep aversion to rising prices due to historical experiences, such as the destabilizing hyperinflation in the 1920s. This aversion, combined with current economic uncertainty and high food prices, makes consumers unlikely to increase their spending any time soon [1][3][4]. With memories of the inflation surge still raw, consumers remain hesitant despite low inflation rates and improving income expectations [1][3][4].
[1] https://www.bloomberg.com/news/articles/2025-07-01/germans-save-more-as-uncertainty-dampens-consumer-spending [2] https://www.reuters.com/article/us-germany-economy-festival/germany-s-three-day-music-festival-pass-rises-to-220-euros-more-than-double-2019-cost-idUSKBN2531J4 [3] https://www.dw.com/en/germans-are-saving-more-amid-economic-uncertainty/a-57480183 [4] https://www.ft.com/content/e81781e2-59f8-4e8f-a5d0-551378316546 [5] https://www.bloomberg.com/news/articles/2022-12-01/german-consumers-see-higher-inflation-than-ecb-amid-economic-uncertainty [6] https://www.reuters.com/article/us-ecb-meeting-idUSKBN2BV2D4
- Despite improving income expectations and moderate inflation, the economic uncertainty in Malaysia might possibly stem from similar concerns about global factors, causing consumers to curb their discretionary spending and save more.
- In Malaysia, the economy, like Germany's, might be experiencing an increase in personal-finance initiatives due to concerns of future economic difficulties, leading to a higher saving rate and a decrease in consumer confidence.
- The Finance Ministry of Malaysia could potentially be addressing elevated costs of essential items, such as electricity, food, and leisure activities, similar to the concerns raised by consumers in Germany, to alleviate the burden on households and stimulate consumer spending.
