Consumers in Germany continue to struggle with persistently high inflation. As in January, consumer prices in February 2023 were 8.7 percent higher than in the same month of the previous year. “The inflation rate remains at a high level,” said the President of the Federal Statistical Office, Ruth Brand, on Friday when the preliminary data was confirmed increased than energy prices.” From January to February of the current year, consumer prices rose by a total of 0.8 percent.
“With an inflation rate of currently 8.7 percent and groceries that have become 20 percent more expensive in one year, many people have to change their private consumption,” classified Christian Wulff from the management consultancy PwC. Retail is also feeling the effects: According to a PwC survey, special offers and the often cheaper private labels are currently in particularly high demand.In the survey in 25 countries, a good two-thirds (69 percent) of the more than 9,000 respondents said they had reduced unnecessary spending.15 percent said they had currently no longer spend any money on products that they don’t really need.
According to the Federal Office, energy products were 19.1 percent more expensive in February than a year earlier. Here the trend is downwards, also because the federal government is spending a lot of money to make natural gas, electricity and district heating more affordable, for example through the price brakes that will apply retroactively to January 1st. Nonetheless, prices for natural gas (up 46.6 percent), electricity (up 23.1 percent) and district heating (up 16.1 percent) were well above the level of February 2022 – the month in which Russia’s war against Ukraine began , as a result of which energy became drastically more expensive.
The European Central Bank (ECB) is trying to counteract this with rising interest rates. Since July, the monetary authorities have raised interest rates five times in a row, and the key interest rate in the euro area is now 3.0 percent. At the ECB meeting on Thursday (March 16), a further interest rate hike of another 0.5 points is considered certain. Higher interest rates make borrowing more expensive, which can curb demand and counteract high inflation. In the medium term, the ECB is aiming for price stability in the euro area with an inflation rate of two percent.
Economists do not expect a thorough relaxation in Germany, Europe’s largest economy, for the current year. Inflation has broadened. According to Ifo researcher Joachim Ragnitz, some companies, especially in retail, hospitality, transport and construction, have recently increased prices more than necessary: ”These companies have used the situation to significantly increase their profits.”
The federal government expects an average inflation rate of 6.0 percent in Germany in 2023. Government energy price brakes are likely to have a dampening effect. According to revised data from the Federal Office, consumer prices in Germany rose by 6.9 percent on average last year. The Bundesbank expects a decline – measured by the harmonized index of consumer prices (HICP), which is decisive for the ECB’s monetary policy – to a value of between 6 and 7 percent in the current year. According to the Federal Statistical Office, in February the HICP in Germany was 9.3 percent above the level of the same month last year.