How rising fuel is affecting German industry

Luke Wilson (0:01)

Climbing gasoline prices put pressure on Europe's biggest economy. It's World Business Express from the BBC World Service. I'm Luke Wilson. Government borrowing costs in the United States reach a 19-year high, and gold helps women get access to credit in Somalia.

Energy prices are soaring around the world, including in Germany, where wholesale gasoline prices have hit their highest level since March 2022 In the last few hours, the German Finance Minister Lars Klingbeil has said that burden must be reduced and alternative funding found quickly, which he suggested could come from attacks on the windfall profits of energy companies. These drivers at a German fuel station say the recent increases are really noticeable. It's pretty crazy, so it's definitely going to keep going up, not down.

Fiona Sincotta (0:58)

My family lives in Aachen, and I'm heading back there right away. But unfortunately, I can't make the trip with an empty tank.

Mike Fratt-Antoni (1:06)

It was just 12 p.m. and I just heard I got yesterday's price.

Luke Wilson (1:10)

I got lucky.

Germany is not just Europe's biggest economy, it's also the continent's biggest manufacturer. So what do rising energy costs mean for those industries? Samina Sultan is Senior Economist for European Economic Policy and Trade at the German Economic Institute based in Cologne.

Samina Sultan (1:27)

It has a lot of impact on the German economy because we still have a high share of industry in the German economy, and higher input costs in terms of energy costs obviously puts a strain on the German economic model and this is at a time when the German economy is under strain anyway.

Luke Wilson (1:46)

Is it just the conflict in the Middle East driving these prices up, or are there other things going on here?

Samina Sultan (1:52)

I think the prime factor driving energy cost is indeed the crisis in the Middle East and around the Strait of Hormuz, but there are also other factors which are specific for the German market. For example, we have relatively high taxes on energy products, but also the type of market situation in Germany is maybe particular because the type of competition might not be as comparable as in other countries in the EU.

Luke Wilson (2:19)

And you mentioned the impact it's having on industry. What impact is it having on the day-to-day cost of living for German people?

Samina Sultan (2:27)

German people notice it most at the fuel station. We all face higher costs when tanking our cars and traveling to work, for example. So that is the most immediate impact we feel right now.

But we are nearing the heating season, and that's obviously when also people will notice the higher gas prices on their bills.

Luke Wilson (2:47)

And is that part of the national conversation of the minute, heading into winter with these high-energy costs in the background?

Samina Sultan (2:53)

The conversation in Germany has been mostly around the low levels of gas storage we have right now. And given the higher prices we are assuming will come in winter, I guess the combination of the two factors is worrisome for experts especially. But I guess the anxieties will grow in the wider population as winter is nearing.

Luke Wilson (3:16)

Samina Sultan from the German Economic Institute. Another cost that's rising around the world is borrowing. The yield on a 10-year US bond, effectively how much the US government pays to borrow money over a 10-year period, has hit its highest level since 2007 and the days of the global financial crisis. It comes ahead of Wednesday's meeting of the Federal Reserve, where America's central bank is widely tipped to raise interest rates, and it also feeds through to things like mortgages. Mike Fratt-Antoni is chief economist at the US Mortgage Bankers Association.

Mike Fratt-Antoni (3:49)

30-year mortgage rates in the United States tend to track the 10-year treasury pretty closely. The last couple of years, they've been running about two percentage points higher with some variation, but that 10-year treasury yield is a very important benchmark for the cost of a mortgage.

It certainly is having an impact on the market as mortgage rates go higher. You both have folks less interested in refinancing existing mortgage, and it's also dampening enthusiasm for home purchases.

Luke Wilson (4:23)

Tomorrow's interest rate decision from the Federal Reserve getting a lot of attention, understandably, but mortgages are set based on where interest rates will be in the future, aren't there? So what's the outlook like more longer term?

Mike Fratt-Antoni (4:36)

Yeah, exactly. A lot of attention to the FOMC beating tomorrow. Markets certainly anticipating that this will be the first of probably a few hikes from the Fed over the next 12 months or so.