Inflation in Germany is on the decline. The inflation rate fell in September to its lowest level since Russia’s war of aggression on Ukraine began in February 2022. According to preliminary data from the Federal Statistical Office on Thursday, consumer prices in September were 4.5 percent above the level in the same month of the previous year. An increase of 6.1 percent was recorded in August. Economists are hopeful that inflation will weaken further in the coming months.
The last time there was a four to the decimal point in the annual inflation rate was in February last year when it was 4.3 percent. After the start of the war in Ukraine, energy prices rose rapidly and fueled inflation overall. “The German decline in inflation is not a surprise, but it is a long-awaited relief,” said Robert Greil, chief strategist at Merck Finck.
According to preliminary data, consumer prices rose by 0.3 percent in September compared to the previous month. Significantly increased prices have been a burden for consumers for months. People can afford less for their money. This slows down private consumption, which is an important pillar of the German economy. The federal government is trying to provide relief, including through price brakes that apply retroactively to January 1st and are intended to make natural gas, electricity and district heating more affordable.
Still too early for the all-clear
Economists had expected inflation to weaken. “In September last year, in addition to the energy price increases, the elimination of the 9-euro ticket and the fuel discount led to a price jump,” explained KfW chief economist Fritzi Köhler-Geib.
According to Commerzbank chief economist Jörg Krämer, the inflation trend is pointing downwards even without this so-called base effect, “because the waves of inflation in energy, food and industrial goods are ebbing.” Nevertheless, it was “much too early to give the all-clear,” warned Krämer.
Deutsche Bank economist Sebastian Becker also sees no reason “to fall into euphoria now or even to put a tick on the issue of inflation”: In his opinion, the path towards permanently lower inflation rates in the region of around 2 percent is likely to be ” “become much more difficult.”
Further weakening of inflation expected
According to economists, the inflation rate is likely to continue to weaken by the end of the year. “The situation is gradually easing on the price front,” said Oliver Holtemöller from the Leibniz Institute for Economic Research in Halle. Energy raw material prices are now significantly lower than at their most recent peak, which is dampening the development of consumer prices.
Leading German economic research institutes expect an annual average inflation rate of 2.6 percent in 2024, after an expected 6.1 percent this year. The institutes assume that the phase of interest rate increases in the fight against high inflation is slowly coming to an end. The European Central Bank (ECB) has raised interest rates in the euro area ten times in a row.
The euro currency watchdogs believe that their goal of stable prices has been achieved with inflation of 2.0 percent in the euro area in the medium term. In September of the current year, the so-called HICP, which the ECB uses for its monetary policy, was 4.3 percent in Europe’s largest economy, Germany, according to preliminary figures. (dpa)