It takes only 24 hours to buy a smart TV in Germany today. In the 1960s, it took 339 hours to buy a black and white TV. How has purchasing power changed and was everything cheaper back then?
The data clearly shows that people can get much more goods and services for their money today than in the past, writes ARD and illustrates this with the following example: In 1960, it took more than 339 hours of work to buy a black and white TV. Today, in Germany, you can afford a smart TV and a high-definition screen after an average of only 24 hours of work. The same applies to many other technical devices, household appliances, clothing and food, the publication adds.
Technical progress makes products cheaper
“If we go back far in time, we will find out how much people's purchasing power has increased. Compared to 1960, it has tripled. For the so-called consumer basket of goods and services, for which people then worked an average of one hour, today only 19 minutes are enough“, Christoph Schröder, an expert from the Institute for German Economics in Cologne, told ARD.
This positive development in purchasing power is mainly due to technological progress and higher wages, with purchasing power increasing most strongly in areas where technological progress is particularly strong. “Wages have increased so much because we have become more productive. "Many things are now produced in larger quantities, much faster and with less effort than they were then," explains Schröder.
Where purchasing power is declining
There are very few examples of a significant decline in purchasing power in the long term. One of them is fish. "Fish has actually become more expensive, which is due to overfishing. There are simply fewer and fewer fish in the seas and oceans. That's why we work a little longer for fish today than in 1960," the expert tells ARD.
Purchasing power has also generally decreased in some services, such as hairdressing. This is due to the fact that productivity in this area has hardly increased, while wages and incomes have increased.
What is the conclusion? The impression some people have that everything was better and, above all, cheaper once upon a time, is only valid for a small number of exceptions. In general, we can afford better quality and cheaper things today than in the 1960s, the publication says.
However, we also remember periods without an increase in purchasing power - “Between 2020 and 2022, inflation completely ate up wage growth“, recalls the ARD. However, in 2024, income growth in Germany outpaced that of prices - prices rose by an average of 2.2%, while wages jumped by 5.3% nominally. This led to real wage growth of just over three percent. The main reasons for this development were inflation compensation bonuses and negotiated wage increases.
Experts predict wage increases
Even without the tax-free inflation compensation bonus paid in 2024, wages are likely to increase again this year, predicts Clemens Fust, president of the ifo institute: “We expect wage increases of four to five percent on average. In the service sector, they will probably be even slightly higher“, he tells ARD.
Chris-Oliver Schickentanz, investment expert at Capitell Vermögens-Management, also expects wage increases: “There is a labor shortage, especially in the service sector. This means that companies will compete for employees and will have to pay higher wages,“ he points out.
Growing purchasing power stimulates consumption
At the same time, some products may soon become cheaper. This is because many German manufacturers feel forced to reduce their prices, explains Schickentanz: “International competition is an important factor. Products “Made in Germany“ have to cope with competition from China and Asia in terms of price as well. And this can have a restraining effect on prices,“ the expert adds.
This is a positive outlook for people in Germany. Because if wages grow faster than prices, people will have more money and will be more willing to spend it. And if more products or services are consumed, sectors such as construction and retail could in turn benefit, explains the ARD.
What will happen to inflation?
The key factor will be how inflation develops this year. According to the current European Commission (EC) forecast, inflation in Germany is expected to be around 2.1% in 2025. However, unforeseen events such as punitive tariffs or a sharp increase in social security contributions could prevent this target from being achieved.
That is why Schickentanz also allows for a slightly different scenario: “We have had inflation between 1 and 2 percent for a long time. I think that time has passed. I assume that in the next decade we will see inflation levels between two and three percent.“
If this is confirmed, people's purchasing power will grow more slowly in the long term.