Ifo: Material consumption slows down industrial production and drives consumer prices

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The lack of materials negatively affects industrial production and increases prices in the long term. This is shown by a new study by the Ifo Institute. According to this, unexpected material shortages lead to a short-term decline in industrial production of 2.4 percent. “Unexpected disruptions to supply chains can put a significant strain on businesses and the economy. Consumers feel it for a particularly long time, as prices continue to rise years after the bottleneck, ”says Ifo researcher Lara Zarges. The slump in production in the automotive industry is particularly strong. The strongest price effects can be observed in the timber and pharmaceutical industries.

With a view to production, growing material shortages are slowing down production immediately, however with available material it only slowly rises back to the previous level. “immediate relaxation in material availability is therefore not enough to compensate to production losses,” says Ifo researcher Friederike Fourné. Two years after a negative shock, manufacturing production is still 0.5 percent below the level that would have occurred in a scenario without material bottleneck shock.

Producer prices and commodity prices are reaching their strongest price increases about a year after the shock, at about 0.3 percent (producer prices) and 0.6 percent (commodity prices). The material shortage in consumer prices remains noticeable the longest. Even two years after the shortages, consumer prices are rising by around 0.1 percentage points per quarter.

The authors consumption the monthly ifo company surveys in the manufacturing sector to the period 2002 to mid-2025. Between 2,000 and 5,000 companies conclusion the survey every month. The study only looks at unexpected and immediate shocks from material shortages. The impact of these shocks was examined with regard to manufacturing production, producer price index, commodity price index and consumer price index.

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