ifo: Material Shortages Slow Down Industrial Production and Push Up Consumer Prices in Germany

The shortage of materials has a negative impact on industrial production and raises prices in the long term. That’s shown by recent study by the ifo Institute. According to the study, unexpected material shortages lead to a short-term decline in industrial production of 2.4%. “Unexpected supply chain disruptions can exert considerable pressure on companies and the economy. Consumers feel the effects for a particularly long time, as prices continue to rise even years after the shortage,” says ifo researcher Lara Zarges. The decline in production is particularly severe in the automotive industry. The strongest price effects can be observed in the wood and pharmaceutical industry.

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When it comes to production, increasing material shortages immediately slow it down, but it only gradually returns to its previous level once materials become available. “Short-term easing in material availability is therefore not enough to offset production losses,” says ifo researcher Friederike Fourné. Two years after a negative shock, industrial production overall remains 0.5% below the level that would have been reached in a scenario without a material shortage shock.

Producer and commodity prices reach their peak increase about a year after the shock, at around 0.3 % (producer prices) and 0.6% (commodity prices). The impact of the material shock can be felt for the longest time in consumer prices. Even two years after the material shortages, consumer prices rise by about 0.1 percentage points per quarter.

The authors use the monthly ifo business surveys in the manufacturing sector covering the period from 2002 to mid-2025, with between 2,000 and 5,000 companies completing the survey each month. The study focuses solely on unexpected and short-term shocks due to material shortages. The impact of these shocks was examined with regard to industrial production, the producer price index, the commodity price index, and the consumer price index.

More information: www.ifo.de

ifo Institut für Wirtschaftsforschung e.V., München