After the price shocks of recent years, inflation in Germany eased in August. However, only a few goods are actually cheaper.
For the first time in over three years, the German inflation rate remained below the 2 percent mark in August. Consumer prices rose at a rate of 1.9 percent compared to the same month last year, the slowest rate since March 2021, the Federal Statistical Office confirmed its preliminary estimate.
Energy in particular was 5.1 percent cheaper than a year ago, while prices for services rose by an above-average 3.9 percent. The price trend was particularly severe for car insurance, which, according to the surveys, became more expensive by more than a quarter. Prices also rose significantly for services provided by social institutions (+7.8 percent) and in restaurants (+6.7 percent). The reason for this is, among other things, significantly higher salaries for employees.
Food is still high and has only become 1.5 percent more expensive than a year ago. However, individual products such as olive oil (+35.0 percent) have become much more expensive. There have been crop failures in the Mediterranean countries. Sweets such as honey, jam, sugar and other confectionery are also 5.0 percent more expensive. Dairy products, on the other hand, were cheaper than a year ago.
Price pressure on consumers is easing after several years of very high inflation rates. In July, statisticians recorded a rise in consumer prices of 2.3 percent, up from 2.2 percent in June. The last time a lower inflation rate was recorded was in March 2021 than in August, when prices were also 0.1 percent lower than in July. Core inflation excluding energy and food fell by 0.1 points to 2.8 percent.
If inflation falls in Germany and the eurozone as a whole over the course of the year, this would give the European Central Bank scope to cut key interest rates. In June, it cut key interest rates by 0.25 percentage points for the first time since the wave of inflation. In July, the ECB kept key interest rates stable and left the door open for a rate cut at the Council meeting on September 12. The financial markets are expecting a rate cut. In the eurozone, the inflation rate for August was estimated at 2.2 percent.
Economists expect the inflation rate to rise again at the end of the year, partly because of the base values from the previous year. Even if the inflation rate remains below two percent in September and October, the problem is not yet solved, warns economist Sebastian Becker of Deutsche Bank Research. The ZEW economic institute in Mannheim also sees only an interim success, but not yet a breakthrough towards price stability.
According to the Japanese bank Nomura, market expectations regarding the extent and timing of possible interest rate cuts will grow. However, growth driven by private consumption will fail to materialize.
Destatis Inflation Communication 8/2024
Source: Stern
