Goods and services did not increase in price in September as much as in many previous months. One product group in particular contributed to this.
The Federal Statistical Office has confirmed its preliminary estimate: In September, consumer prices rose at a rate of 1.6 percent, the slowest rate in over three years. This was primarily due to the sharp decline in energy prices, as the federal authority reports. The era of sharp price increases on goods and services appears to be over. Lower inflation was last observed in February 2021 at 1.5 percent.
The ebbing of inflation is fundamentally good news for the weak German economy and consumers, who have lost long-term purchasing power due to the energy crisis and increased food prices. The European Central Bank (ECB) cut its key interest rate for the second time this year in September, citing falling inflation. This should make loans for investments and consumer spending cheaper. On the other hand, interest rates on credit balances decrease.
Call for further interest rate cuts
Next week (October 17th), the ECB Council will discuss further interest rate policy at an external meeting in Slovenia. Economist Silke Tober from the Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union Hans Böckler Foundation believes further interest rate cuts are necessary. The monetary policy restriction weakens the economy and prevents necessary investments. With wage dynamics weakening, inflation rates close to the two percent mark can be expected in the euro area in the coming months and also in the coming year. At this value, the ECB sees its goal of price stability fulfilled.
Energy has become significantly cheaper
Energy products were on average 7.6 percent cheaper in September than a year earlier. These include, among other things, fuels, heating oil or wood. Electricity and natural gas were also cheaper than a year ago. The statisticians observed a price increase of 1.6 percent for food. Individual products such as olive oil (+29.6 percent) or butter (29.3 percent) also saw significantly higher price jumps. The so-called core inflation excluding energy and food fell to 2.7 percent. Services were much more expensive than a year ago, with an increase of 3.8 percent. This reflects the comparatively high collective bargaining agreements for many professional groups.
Economists expect inflation in Germany to initially remain below the two percent mark, but to pick up again at the end of the year. Private consumption is also an important hope for the German economy, which remains in recession. On Wednesday, the federal government lowered its economic forecast to negative levels. It now expects economic output to decline by 0.2 percent for the current year.
Source: Stern
