And it is likely to continue growing until the end of the year. People are understandably worried about these developments. Higher inflation lowers the purchasing power and reduces wages and interest income in real terms – that is adjusted for inflation. Real interest rates on savings deposits in Germany are now visibly negative after the recent increase in inflation (Slide 3).
Negative real interest rates are nothing out of the ordinary per se. Both before and after the euro was introduced, there were longer periods of negative real interest rates.1 The most recent spike in consumer prices, however, coincided with a phase of very low or even negative nominal interest rates, which compounds people’s worries.