Economists who’ve been observing Germany’s lackluster inflation rates over the past three years might be scratching their heads when they order their first beer at Munich’s Oktoberfest this weekend.
The 206-year old festival — which kicks off this Saturday after the city’s mayor opens the first barrel and proclaims “O’zapft is!” (“It’s tapped!”) — will sell liter-jugs of beer at an average price of 10.54 euros, 3 percent more than last year.
According to UniCredit economists Tobias Ruehl and Thomas Strobel, overall costs for a visit to the Oktoberfest (known locally as “Wiesn”) will be up by even more than that, affected mainly by a jump in the price for the traditional roast chicken — a somewhat perplexing phenomenon given that Germany’s poultry prices have decreased over the past two years.
Both increases are far above Germany’s current overall inflation rate of 0.3 percent. A mass of beer, specifically, is more than twice as expensive today than it was in 1985 when it cost 6.1 deutschmarks — German consumer prices have risen only 69.7 percent since then. While economic theory suggests that such a dramatic increase would make consumers purchase less of a good, Ruehl and Strobel suggest a different set of laws might be governing demand for beer in Germany, manifesting what is known as a “Giffen good.”
That’s a product which people consume more of as the price rises. Previous studies have found that poor Chinese households consumed more rice as its price went up, mainly because more expensive substitutes — like meat — were no longer affordable. In the case of Oktoberfest, beer consumption goes up as substitutes available inside the tents are lacking, and visitors need to consume the goods provided, the researchers say.
Another factor might be rising wages. While real wage growth has accelerated, it’s “still not sufficient to offset the increases in beer prices,” according to UniCredit. “Thus, consumer behavior remains a bit puzzling.”
Oktoberfest visitors don’t have much of an alternative. While more than 1,300 breweries across Germany offer a wide variety of beers, the choice at the Theresienwiese fairground in Munich is rather limited. There are just six breweries – including Augustiner, Hacker Pschorr or Paulaner – that comply with 1487 and 1906 purity laws and can be consumed in the tents.
Still, Germany’s Oktoberfest inflation isn’t ultimately going to mean much for the European Central Bank’s mandate.
“Increasing Wiesn prices are once again not expected to impact low inflation expectations in Germany and in particular in the eurozone,” Bruehl and Strobel write. Beer prices “would need to triple – holding all other prices constant – to reach the ECB’s inflation target of 2 percent for Germany. Since beer prices in Germany have increased by 42 percent since 1991, there is still some room for improvement.”