The surge in the cost of living by 3.1% in 2021 was largely driven by rising energy prices, supply chain bottlenecks and the end of a temporary VAT cut.
The cost of living in Germany dramatically increased in 2021Image: Patrick Pleul/dpa/picture alliance
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Consumer prices in Germany rose by 3.1% in 2021, according to preliminary data released by the Federal Statistical Office on Thursday.
It is the highest inflation rate since 1993.
Rising energy costs and supply bottlenecks largely drove the surge in the cost of living.
In 2020, Germany's average inflation was still relatively low at 0.5%. By December 2021, the year-on-year increase in prices stood at 5.3%.
It was the second time since reunification that German inflation had topped the 5% mark, after coming in at 5.2% in November.
The rise in energy prices was expected to remain the biggest driver of increases in prices.
"The sharp rise in natural gas prices is not likely to reach consumers until the beginning of 2022 due to the existence of long-term contracts with gas suppliers in many cases," the Leibniz Institute for Economic Research told the dpa news agency.
"There is still a sense that [eurozone] inflation could surprise to the upside for longer than expected, so markets have to position for the view that the ECB could capitulate and move earlier on rates," Mizuho Bank rates strategist Peter McCallum told Reuters news agency.
The European Central Bank, or ECB, strives for an annual inflation rate of 2%.
The economy in 2021: COVID, containers, cryptocurrencies and a canal
By any measure, 2021 was a turbulent year for businesses around the world. Supply chain problems, a blocked Suez Canal, price increases, cryptocurrencies and a big car factory are likely to be remembered in Germany.
Image: Suez Canal Authority/dpa/picture alliance
A supply chain mess on a global scale
The coronavirus pandemic hit the supply chains behind world trade. Manufacturers that depended on just-in-time delivery were caught out and couldn't get what they needed. Container ports were hampered by lockdowns, and ships had to wait in line. Freight rates skyrocketed as containers became a popular commodity. All this combined is making it difficult for the global economy to recover.
Image: Zhang Jingang/VCG/Maxppp/picture alliance
Still more supply chain problems
As if bottlenecks in container ports weren't bad enough, the container ship Ever Given ran aground and got stuck in the Suez Canal at the end of March. Because of that, one of the world's most important waterways for global trade was closed for six days and hundreds of ships backed up in both directions. Pictures of the blockage went around the world and showed how delicate supply chains were.
Image: Maxar Technologies/AP/picture alliance
Supply chain problems hit shoppers
It didn't take long before the consequences of hobbled supply chains were felt everywhere like in the supermarket, where seasonal and promotional goods did not arrive, or in hardware stores, where wood prices skyrocketed. This year even Santa Claus will probably not be able to fulfill all of the children's wishes for toys, clothing or video games.
Image: C. Lankes/DW
The auto industry comes to a standstill
The auto industry in particular suffered from a lack of components. When the production lines came to a halt last year during lockdowns, many of them cut back on their semiconductor orders. This decision came back to bite them when production resumed. Without the necessary parts, up to 11 million fewer cars were made worldwide this year. Whole factories, such as here at Opel, stood still.
Image: Martin Schutt/dpa/picture alliance
Price increases follow supply chain chaos
Because economies around the world went back online at practically the same time, the demand for raw materials and energy rose suddenly and exorbitantly. And, following basic economic theory, the prices also went up at the same time unabated. Filling up the car and heating became a more expensive affair. The inflation rate in Germany rose higher than in the past 29 years.
Image: Frank Rumpenhorst/dpa/picture alliance
Hour of truth for a disputed pipeline
Speaking of heating, one project in particular made big headlines. In Germany, many use natural gas from Russia, and soon more of it is expected to flow through the Nord Stream 2 pipeline. Running along the Baltic Sea, the project was completed in September despite threats of US sanctions and much criticism. But gas is still not flowing because the government has not given it a final go.
Image: Axel Schmidt/Nord Stream 2
Ransomware, a growing trend
One up-and-coming business is criminal, but that has not stopped it. Ransomware has proved profitable when viruses are used to paralyze IT systems of private individuals or companies such as pipeline operators. The people behind the attacks demand big ransoms — preferably in Bitcoin — so users can access their encrypted data again. This year, the total loss is expected to come in at $20 billion.
Image: Jim Watson/AFP/Getty Images
The Bitcoin roller coaster
For Bitcoin owners, this past year was not a time for the faint of heart. The value of the digital currency fluctuated from under $20,000 to nearly $70,000, making headlines along the way. In September, El Salvadoran President Nayib Bukele declared the cryptocurrency to be an official national currency. It was the first country to take this step into the digital future.
Image: Marvin Recinos/AFP
Game over?
Earlier this year, owners of shares in the video game retailer Gamestop couldn't believe their eyes. On the first day of trading on January 13, the shares rose by 50%. After that in short order the price jumped from $17 to $483. But the fall was just as dramatic. The whole thing was fueled by investors who coordinated their actions on online platforms such as Reddit, and neobrokers like Robinhood.
Image: STRF/STAR MAX/IPx/picture alliance
One railroad strike after another
Germans hadn't heard from Claus Weselsky for a long time. But the labor leader made headlines time and again this year. The head of the GDL train drivers union called his troops to the picket lines in March and brought train traffic to a standstill. After three waves of dayslong standstills, a collective wage agreement was finally signed in mid-September.
Image: Michael Sohn/AP/picture alliance
Throwing in the towel
Germany's Bundesbank had a personnel issue when in October its boss, Jens Weidmann, surprisingly announced his retirement at the end of the year. He claimed he was leaving for personal reasons, but that is probably only half the story. His job also automatically means that he's a member of the European Central Bank's Governing Council, where he had few supporters for his stance on monetary policy.
Image: picture-alliance/dpa/K. Nietfeld
A new name, old problems
Just changing your name doesn't make you a different person and the same is true for Facebook. In October, the company rebranded as Meta. It is supposed to have something to do with the metaverse and sound a lot more modern. But the image of Mark Zuckerberg's tech behemoth has been badly damaged, especially since the revelations of whistleblower Frances Haugen became public.
Image: Tony Avelar/AP/picture alliance
A mega goodbye to a big dream
It was a short, but expensive, aviation story. The gigantic A380 from Airbus made big headlines when the first one was delivered in 2007. It was the world's largest passenger plane, but in the end only 251 of them were sold and the program was stopped in mid-December. Despite cost and inefficiency, Emirates Airlines stuck with the manufacturer and got the last one off the Hamburg assembly line.
Image: Christian Charisius/dpa/picture alliance
The factory of the year
Elon Musk wanted to get the green light this year to start up his new electric vehicle factory outside Berlin. The whole thing was built in just two years, an unimaginable timetable by German standards. It is ready, but the company is still waiting for the final operating license. Problems surrounding the water supply have come up, and the start of production was postponed until next year.