The GfK reading for German Consumer Confidence for January of 2022 was released this morning and came in at -6.8, continuing its roll-over from a recent post-COVID high. This is the second consecutive month-over-month decline and the lowest reading since June of 2021. At current levels, consumer sentiment in Germany remains well off its pre-COVID levels, and one factor behind the slower rebound (besides the fact that COVID won’t go away) could be what seems like a relentless increase in prices as supply chain issues persist and energy prices surge.

While prices have been rising, consumers seemingly expect the rapid rate of increase to be temporary as price expectations look to have peaked for the time being. It’s also worth pointing out in this chart that while sentiment levels are still well below pre-COVID levels, price expectations are well above pre-COVID levels.

Besides higher prices, rapidly rising numbers of COVID cases are obviously another factor weighing on consumer sentiment in Germany. In the chart below, we plot the monthly average number of COVID cases in Germany to Consumer Confidence since the start of 2020. While there has been a limited inverse relationship between the two series, the recent drop in sentiment against the surge in cases cannot be dismissed.