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FvS Wealth Price Index for Germany

Q4-2019: Inflation at 7.6%

At the end of 2019, the prices for the assets of German private households rose by +7.6% in comparison to the end of the previous year. The reasons for this development are both the sharp rise in prices for business wealth and the relentlessly rising prices on the real estate market. Households without real estate and without business wealth, as is particularly the case among young, poor or old households, are suffering from the asset price inflation.

Consumer prices rose by only +1.2% in this period. Since the first quarter of 2005, long-term asset price inflation has thus been +3.2%, while long-term annual consumer price inflation has been less than half that rate at +1.4%.

The assets of private German households can be divided into real assets and financial assets. The prices of real assets held by German households rose by +8.1% in the course of 2019, while financial assets became more expensive by +5.4%. For both categories, the price increase is considerably higher than the inflation rates of the previous quarters. Due to the higher share of real assets in the balance sheet of German households, the price development of real assets is decisive for the development of the overall index.

Within real assets, price trends for business wealth and on the real estate market are decisive. At +6.3% compared to the same quarter of the previous year, real estate prices have risen considerably in 2019. The historically low level of interest rates continues to lead to high demand for real estate despite the gloomy economic outlook. At the end of 2019, prices for businesses owned by private German households had risen considerably by 23.5%. The price of business wealth is measured by the SDAX price index, which reflects the change in the share prices of 70 listed German SMEs. At the end of 2018, prices on the stock markets fell massively due to recession fears but rose again rapidly in spring 2019. The price of collectibles and speculative items rose by +1.3% and durable consumer goods owned by German households became +0.9% more expensive.

Within the financial assets of German households, the prices of shares have risen most sharply. Compared with the end of the previous year, the price of shares rose by +18.4%. At the end of 2018, stock markets around the world recorded price declines, but in spring 2019 they rose again significantly. The price of other financial assets (measured in terms of gold and commodity prices) also rose significantly by +15.5%. This is attributable to the price of gold, which rose by +21.4% compared with the same quarter of the previous year. Prices for bonds held by German households rose by +3.2%. Due to the renewed fall in interest rates in the course of 2019, prices on the bond markets in Europe and the USA have risen further. By definition, the price of German households' savings assets remains unchanged.

In the cross-section of the net wealth of German households, asset price inflation is highest for the wealthiest households. Due to the high share of business wealth, the prices for the assets of the wealthiest households rise by +9.1%. The lower middle class shows the lowest price increase at +3.5%, as it has a high share of savings and the lowest share of business wealth. For the remaining households, asset price inflation is between +5.1% and +6.2%. As the relative share of business wealth and real estate is the decisive factor for asset price inflation, inflation for these households increases as net wealth rises.

In the cross-section of household age, asset price inflation shows a U-shaped pattern. While the youngest households (25-34 age group) experience asset price inflation of +7.1%, it rises to +9.0% by the 45-54 age group. As age increases further, asset price inflation then falls again, so that the assets of the oldest households show the smallest price increase at +6.3%. The relative share of business wealth is one of the decisive factors for the course of inflation in the cross-section of age. This is highest in the age group 45-54.

Consumer prices, on the other hand, show a completely different development. At the end of 2019, consumer price inflation for German households was +1.2%, which is far below asset price inflation. The development of producer prices also differs considerably from asset prices. These have fallen by 0.5% over the same period.

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%).

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 2014. 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 (2016). 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 population cross-section according to 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

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