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Weekly market in Frankfurt: Prospect of easing in the face of rising prices

Photo: Boris Roessler / dpa

According to an initial estimate, inflation lost significant momentum in September. Consumer prices were 4.5 percent higher in September than in the same month last year – after 6.1 percent in August, as the Federal Statistical Office announced on Thursday on the basis of preliminary figures. Compared to the same month last year, consumer prices rose by 0.3 percent in September, according to preliminary data.

The last time there was a four before the decimal point in the inflation rate was in February last year, when it was 4.3 percent. Inflation in Germany has thus fallen to its lowest level since the beginning of the Russian war of aggression on Ukraine in February 2022.

After the start of the Ukraine war, energy prices had risen rapidly, pushing inflation overall.

Food has recently been a price driver

In September, food prices rose particularly sharply within a year by 7.5 percent, according to preliminary figures. The rise in energy prices, on the other hand, slowed significantly. Household energy and fuels cost 1 percent more than a year earlier.

Economists had expected inflation to weaken in September because the effect of the 9-euro ticket and the fuel discount is now out of the previous year's comparison. The reason for the significant decline in the inflation rate is therefore a so-called statistical base effect: In the summer of 2022, the 9-euro ticket, which was limited to three months, and the fuel discount temporarily slowed down the rise in consumer prices. When the 9-euro ticket expired last September, it led to a sharp rise in inflation. In September 2022, the inflation rate climbed from 7 to 8.6 percent. This year-on-year increase is now having a positive impact on inflation because the year-on-year basis for comparison is so high.

Meanwhile, inflation is far from its highest level since reunification at 8.8 percent in autumn 2022.

Further weakening of inflation expected

According to economists, the inflation rate is likely to weaken further by the end of the year. "On the price front, the situation is gradually easing," said Oliver Holtemöller of the Halle Institute for Economic Research. Energy commodity prices are now significantly lower than at their recent peak, which is dampening the development of consumer prices.

Leading German economic research institutes expect an annual average inflation rate of 2024.2 percent in 6, up from an expected 6.1 percent this year. The institutes assume that the phase of interest rate hikes 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 so far.

The increased prices have been a burden on 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 German government is trying to relieve the burden, among other things through price brakes that will apply retroactively to 1 January and are intended to make natural gas, electricity and district heating more affordable.