FvS Wealth Price Index for Germany

Q1-2022: Trend reversal underway

The different measures of inflation (asset prices, consumer prices and producer prices) always showed the same pattern in the years 2010 to 2020. While producer and consumer prices increased only very slightly in the long-term trend and much slower than the ECB's desired rate, asset price inflation was significantly higher than the other two measures. Over this period, while asset prices increased by +57 %, consumer prices increased by only +14 % and producer prices by +10 %. Starting 2021, this pattern seems to have reversed. Since then, asset prices have only risen by +8.6%, a moderate increase compared to the years before. Consumer prices, on the other hand, increased significantly more in the most recent five quarters than in the previous period, rising by +7.2%. The change in pattern is particularly marked in producer prices, which have risen at a record pace of +30.9% since 2021.

The reasons for the change in the pattern are, first, the long-term consequences of the covid-19 pandemic and its contingency measures and, second, geopolitical changes due to the invasion of Ukraine by the Russian army.

Latest developments at the end of the first quarter of 2022

At the end of the first quarter of 2022, asset prices for private German households rose by +6.0 % compared to the same quarter of the previous year. After the record values of the past quarters with double-digit growth rates for asset prices in some cases, price growth has weakened considerably.

Within the last four quarters, there was a change in dynamics. While, due to the economic recovery, asset prices were still rising strongly in the middle of 2021, the price increase flattened out at the end of the year. Within the first quarter of 2022, prices even fell by ‑0.6 %. The reasons for the change are shifts on the capital markets due to expectations of rising consumer prices and the associated increase in interest rates, the outbreak of the war in Ukraine and the lockdown measures in China.

Consumer prices, which are usually used to measure inflation but do not fully describe it, rose by +5.8% in the same period, which is the highest value in our observation period since 2005. Producer prices increased by +27.3% compared to the same quarter of the previous year and show the highest growth rate of the three inflation measures.

The price development of real assets (real estate, business wealth, consumer durables, collectibles & speculative items) owned by private German households dominates the development of the overall index. In the aggregate of real assets, prices stagnated within the first quarter of 2022 (-0.1 %) but increased by +7.2 % compared to the same quarter of the previous year. There are different developments within the four categories of real assets.

The steady price increase on the German real estate market continued in the first quarter of 2022. Within the first quarter, prices for real estate rose by +2.1 %, compared to the same quarter of the previous year the price increase amounts to +10.1 % and is again just below the record value from last year. The general conditions on the real estate markets have changed since the end of last year, but a measurable price influence cannot be discerned. Mortgage rates have risen significantly since the fourth quarter of 2021 and have not been at its historic low since the end of the third quarter. Commodity prices have risen massively, which has increased the costs of new construction and renovation. Yields on fixed-interest government bonds with high credit ratings have also risen during the last quarter, making them again attractive for institutional investors. Despite all this, prices have not stagnated or fallen. A shortage of supply in urban locations, stable income situations of private households, a high appreciation of private housing and sufficient liquid funds of institutional investors have maintained demand above supply and prices have therefore further increased.

Prices for business wealth owned by private German households were -8.9 % below the previous year's value at the end of the year. While in the course of the past 12 months the economic upswing initially caused business shares to become more expensive, prices fell significantly in both the last quarter of 2021 and the first quarter of 2022. This is due to uncertainties about future earnings prospects due to rising producer and consumer prices, the economic consequences of Russia's invasion of Ukraine and the sanctions imposed by Western countries. The lockdown imposed in some metropolitan regions such as Shanghai, Changchun and Beijing as part of the fight against the pandemic in China is also having a noticeable impact on German companies in the form of delays in the supply chains.

Prices for consumerdurables experienced a significant price increase. At the end of the first quarter, prices were +6.6 % above the previous year's level. It is once again the highest growth rate for this category since the index was established. Particularly strong price increases were recorded in this category for consumer vehicles (+8.2%) and for other consumer durables for leisure and culture (+7.3%). The largest portion of the yearly increase in the price of nondurable goods occurred in the most recent quarter and was due in part to increased production costs and supply constraints caused by supply bottlenecks.

The price of collectibles and speculative items have increased by +17.5 % compared to the same quarter of the previous year. The increase is particularly strong for precious wines (+27.6 %), art objects (+20.3 %) and historic automobiles. The development is the result of the economic upswing and the demand for valuable goods on the part of wealthy households as an investment or inflation protection. The influence of the war in Ukraine and the lockdown in China cannot yet be seen in the price development of these goods in the most recent quarter.

The price of financial assets of private German households (savings deposits, shares, bonds and other financial assets) hardly changed compared to the same quarter of the previous year (+0.4 %), but there were significant price movements within the four quarters. Particularly in the most recent quarter, prices decreased strongly (-8.2 %).

Within tangible assets, prices for fixed-income securities fell significantly by ‑5.8% compared to the same quarter of the previous year. While concerns about rising consumer prices and interest rates already caused investors to divest themselves of fixed-income securities with low interest rates in the previous calendar year, the expectations realised in the first quarter of 2022 and caused the price of total fixed-income assets to fall significantly by ‑5.2 % within the quarter. The price decline in the first quarter was particularly strong in the emerging markets with more than ten percent. Bonds of German, European and North American issuers also recorded price declines of five to six percent in the first three months of the year.

At the end of the first quarter of 2022, the prices of shares owned by private German households were only +1.0% higher than in the same quarter of the previous year. While share prices had still risen slightly in 2021, they recorded a significant price decline of ‑8.2 % in the first quarter of 2022. In addition to the lockdown in China and rising producer prices, the war in Ukraine is also showing up in European stocks. Prices for German shares fell by ‑11.7 % in the first quarter of 2022 alone. In other European countries, prices fell by -5.9 % in the same period and by ‑4.0 % for North American stocks.

The price of other financial assets, which is measured by the prices of gold and commodities, shows the highest growth rate of all categories. Compared to the same quarter of the previous year, prices increased by +40.2%. This price increase is mainly due to the +72.1% rise in commodity prices. This means that commodity prices have reached a record level, even surpassing the previous record prices from 2008. The reason for the enormous increase in commodity prices is the economic upturn starting in 2021, problems in global supply chains, increased energy costs as well as the economic sanctions against Russia because of the war in Ukraine. While the gold price fluctuated in the first three quarters under consideration, it increased significantly with the outbreak of the war and gold was +22.2% more expensive than at the end of the same quarter of the previous year. Above all, gold's characteristic as a crisis metal, which had already caused its price to rise strongly during the pandemic, was again evident due to the political uncertainties.

The prices for savings deposits remain unchanged by definition.

In the cross-section of net wealth of private German households, the picture at the end of the first quarter is homogeneous. The price increase for the middle-class and the poorest households was similar (+4.3 % to +7.9 %). The wealthiest households have the second lowest price growth rate in their asset prices (+5.0%), as they are more likely to be affected by the decline in business asset prices. Lower-middle-class households have the lowest growth rate at +4.3%, as they have the largest share of savings that are not subject to price changes.

Asset price inflation is also homogeneous across household ages (measured by the age of the household's reference person). Younger households (25 to 34 years) own less real estate and therefore benefit less from rising real estate prices (+5.2% compared to the same quarter of the previous year). Among households at retirement age (65 years and older), in contrast, real estate assets account for a particularly large share, so that the highest price growth rates can be measured here (+7.3% to +7.6%). Business assets are most strongly represented among households in the group of 45 to 54 years old.  With +4.6% compared to the same quarter of the previous year, the price increase in the age cross-section is the lowest.

Since the end of 2021, producer prices have increased massively. In the first quarter of 2022, producer prices rose by +27.3% (2021-Q4: +20.6%) compared to the same quarter of the previous year. Much of the price increase occurred in the fourth quarter of 2021 (+8.5%) and the first quarter of 2022 (+8.5%). Due to the war in Ukraine, prices for natural gas and intermediate goods such as metals, fertilisers and animal food rose in particular in March. The price effect of the war will be more visible in the next quarter.

Consumer price inflation is picking up speed. It was +5.8% compared to the same quarter last year. In the course of the last quarters, higher producer prices translated more and more into consumer prices. In addition to supply bottlenecks and the intensified pandemic situation in China, the war in Ukraine contributed to the increase in the price of energy products such as heating oil, fuel as well as some food items.

The Flossbach von Storch (FvS) Wealth Price Index measures the price development of the assets held by German households. The index corresponds to the weighted price development of real and financial assets owned by German households. In addition to real estate and business wealth, real assets also include durable consumer goods as well as collectibles and speculative items. Financial assets are divided into shares, bonds, saving deposits as well as other financial assets. Real estate is by far the largest category (63.7 %), followed by business wealth (11.7 %) and cash holdings (10.5 %).

With the publication of this index, both the year of weighing and the year of indexation were moved from 2014 to 2017. This leads to forced changes in past index levels. 2017 was chosen as the weighing year because the publication of the third wave of the study "Private Haushalte und ihre Finanzen " by the Deutsche Bundesbank (Deutsche Bundesbank: Monatsbericht April 2019) provides new data on the asset composition of German households. All sources that were also used for the weighing scheme have also been updated with 2017 data.

The FvS Wealth Price Index measures the price change of assets held by German households. The index is calculated using the Laspeyres method as a weighted average of time series of indexed prices which reflect the change in the prices of assets in euro. The index is based on the average for the year 2017. Where necessary, quality-adjusted time series have been used and gains, such as interest payments, have not been taken into account. There is no valuation approach employed. For the asset class shares, for example, the share prices and not the price-earnings ratio are taken into account. This corresponds to the procedure for commodity price indices, in which only commodity prices and not the price-utility ratio are included.

The relevant assets are selected via the study "Private Haushalte und ihre Finanzen" (PHF) of the Deutsche Bundesbank (2019). The weighting scheme of the time series is based on the survey results of the 2014 PHF study and corresponds to the share of assets in the total assets of German households. The composition of household assets in the cross-section of the population across wealth and the age of the household members is very heterogeneous. Therefore, the FvS Wealth Price Index is additionally calculated for different quantiles of the distribution of net wealth of German households (total wealth less liabilities) and for different age groups (measured by the age of the reference person of the household).

The assets of a household are divided into various sub-groups of real assets and financial assets. Real assets include real estate, business wealth (net), consumer durables, and collectors' and speculative items. Financial assets include savings deposits, shares, bonds and other financial assets. Assets in the form of funds units and credit balances under cash value insurance contracts are allocated to the aforementioned components according to their respective composition.

The price development of real estate assets is tracked by the vdp-Immobilienpreisindizes (real estate price indices) by vdpResearch GmbH. The index "Wohnen" (residential) reflects the change in prices for owner-occupied residential property, while the price change for other properties is covered by the index "Gesamt" (total). Since the "Gesamt" index is available only from 2008 onwards, quarterly values before 2008 are approximated using average annual growth. The two indices are weighted according to the distribution of household wealth. Both price indices are based on a transaction database that represents almost 90 percent of the turnover of the German real estate market.

Private business wealth comprise all non-publicly traded participations of private households. The price development is approximated by the SDAX price index of Deutsche Börse, which records prices for medium-sized companies. The SDAX price index reflects the price development of 50 publicly traded companies in traditional industrial sectors that follow the MDAX-listed stocks in terms of market capitalisation and stock exchange turnover.

In order to measure the price development of durable consumer goods such as vehicles and furniture, the corresponding components of the consumer price index are used by destatis (Federal Statistical Office). The relative weighting is based on the respective weight in the consumer price index.

The price development of collectors' and speculative items is measured equally by the four representative goods categories jewellery, artworks, historical automobiles and precious wines. Jewellery prices are measured using the "Schmuck aus Edelmetallen" component of the consumer price index. The Artprice Global Index from Artprice.com is used to track price developments on the art market. This price index is based on auction prices for paintings, sculptures, drawings, photographs, prints, aquarelles and similar items. The HAGI Top Index of the Historic Automobile Group International (HAGI) is used to measure the prices of historic automobiles. The index tracks the price development of 50 rare historical automobile types based on a database of transactions covering more than 18,000 individual vehicles. Quarterly values prior to 2009 are based on an equally weighted recalculation interpolating during the year. The price development of precious wines is measured with the Liv-ex Fine Wine 100 published by the trading platform Liv-ex Ltd. The index measures the price development of the premium segment of the wine market for wines for which a secondary market exists. The index primarily includes Bordeaux wines, but also wines from the wine growing regions of Burgundy, Rhône, Champagne and Italy.

Since saving/sight deposits are not subject to a price directly, they are assumed not to show any price changes and are therefore modeled by a constant time series. This category includes, inter alia, current, savings, fixed-term and call money accounts, balances on building savings and non-governmental pension contracts and claims on other households.

The price development of shares is recorded by various share price indices. Using data from the Coordinated Portfolio Investment Survey (CPIS) of the International Monetary Fund (IMF), the geographical weighting of German equity investments is determined and, based on this, MSCI price indices are weighted accordingly.

Similar to the procedure for equity investments, the geographical distribution of bond investments is determined using data from the IMF and the Bank for International Settlements (BIS). The price development is calculated using the corresponding bond price indices from Barclays Bank PLC. Both government and corporate bonds with different credit ratings and residual maturities are taken into account.

Other financial assets, which are not covered by the three previous categories, are measured by the development of gold and commodity prices. The Rogers International Commodity Index is used for the price development of commodities, which reflects the price development of futures on various commodities. The price of gold is determined via the London Bullion Market.

The capital, which is bundled in insurance contracts and funds, is allocated on the basis of data provided by the German Insurance Association (GDV) and the Federal Association for Investment and Asset Management (BVI).

In the case of time series with daily values, the average end-of-day index status of the last quarter month is always used. For indices available monthly, the last monthly value in the quarter is used.

Revision of historical data of the underlying time series may result in a deviation of the historical index values from previous publications.

Publication dates

The index values of a quarter are published as follows:

First quarter: 15 May
Second quarter: 15 August
Third quarter: 15 November
Fourth quarter: 15 February of the following year

If the date falls on a weekend or a public holiday, publication will take place on the next working day.

List of data sources

Art Market Research Developments Ltd.
Bank für Internationalen Zahlungsausgleich (BIZ)
Barclays Bank PLC
Bundesverband Investment und Asset
Management (BVI)
Deutsche Bundesbank
destatis – Statistisches Bundesamt
Gesamtverband der Deutschen Versicherungswirtschaft (GDV) e.V.
Historic Automobile Group International (HAGI)
Internationaler Währungsfonds (IWF)
Liv-ex Ltd
vdpResearch GmbH