Inflation in Germany is falling to its lowest level in around three years. Energy and food prices are the main contributors to this.
Cheaper food and lower energy prices give consumers in Germany hope after recent price jumps. In March, the inflation rate fell to 2.2 percent, its lowest level in around three years.
The Federal Statistical Office confirmed preliminary data. “The price situation for energy and food dampened the inflation rate for the second month in a row,” explained head of the authorities Ruth Brand. “In March 2024, food was cheaper for consumers for the first time since February 2015 than a year earlier.”
The overall inflation rate in March was as low as it was last in May 2021, when it was also 2.2 percent. The previous value was lower in April 2021 at 2.0 percent. In February of the current year, inflation was 2.5 percent and in January it was 2.9 percent. According to Dekabank chief economist Ulrich Kater, the great wave of inflation is over. “The real inflation panic, which rightly prevailed in parts of the population, is behind us,” said the economist from the financial news agency dpa-AFX recently.
Some foods are even cheaper
People paid 0.7 percent less for food in March than a year earlier. In particular, fresh vegetables (minus 20.1 percent) and dairy products (minus 5.5 percent) became cheaper. Sugar, jam, honey and other confectionery (plus 8.4 percent) as well as fruit (plus 4.2 percent) became more expensive within a year.
Despite the energy price brakes that expired at the beginning of the year and the increase in the CO2 price to 45 euros per ton of carbon dioxide (CO2), energy prices fell by 2.7 percent. Natural gas (minus 9.2 percent) and electricity (minus 8.1 percent) were cheaper, among other things. District heating, on the other hand, costs 20.6 percent more.
Services rose in price by 3.7 percent. Consumers had to pay significantly more than a year ago, among other things, for insurance (plus 11.0 percent). Visits to restaurants cost 6.9 percent more. Since January 1, 2024, the regular VAT rate of 19 percent has again applied to food in restaurants.
Compared to the previous month of February, consumer prices rose by 0.4 percent in March.
Inflation expected to weaken
On an annual average, leading economic research institutes expect inflation to weaken significantly to 2.3 percent after 5.9 percent last year. However, things could get bumpy in the final few meters, KfW chief economist Fritzi Köhler-Geib recently said. “A price increase for gas and heat supplies can be expected as early as April due to the end of the VAT reduction.”
Higher inflation rates reduce the purchasing power of consumers. People can afford one euro less. Last year, many consumers therefore turned the red pencil. Private consumption failed to provide an important economic support.
Interest rate cut expected in the euro area in the summer
The European Central Bank (ECB) is aiming for price stability with an inflation rate of two percent for the euro area and Germany in the medium term. After a series of interest rate hikes in the fight against temporarily high inflation, economists generally expect interest rates to fall in June. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, more expensive financing is also a burden for companies and private investors.
In March, the so-called HICP, which the ECB uses for its monetary policy, was 2.3 percent in Germany above the level of the same month last year. HICP stands for Harmonized Index of Consumer Prices and is used to make price changes in the Eurozone internationally comparable.
Inflation March preliminary Eurostat on inflation in the euro area Federal Statistical Office on inflation in Germany ECB explanations on the subject of inflation ECB definition of price stability Time series ECB key interest rates Inflation March final
Source: Stern
