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Gas pump: relaxation in energy prices
Photo: Manngold / IMAGO
Inflation fell noticeably in Germany at the beginning of the year due to falling energy costs. Consumer prices only rose by an average of 2.9 percent in January compared to the same month last year, as the Federal Statistical Office announced in its first estimate. This is the lowest value since June 2021 when it was 2.4 percent. In December, the inflation rate had climbed to 3.7 percent - driven by a special effect.
Consumers have recently been relieved by falling energy prices: They fell by 2.8 percent in January compared to the same month last year, after rising by 4.1 percent in December due to a special effect. Price drivers once again remained food. They rose in price by an average of 3.9 (December: plus 4.5) percent, services by 3.4 (December: plus 3.2) percent. The so-called core inflation – which excludes energy and food prices – fell from 3.5 to 3.4 percent.
According to economists at Deutsche Bank, several measures taken by the federal government prevented inflation from falling sharply in January. These include the end of the energy price brake, the elimination of a billion-dollar subsidy for network fees and the increase in the CO₂ price for refueling and heating from 30 to 45 euros per ton. VAT of 19 percent will again be charged on food in restaurants, no longer the reduced rate of seven percent that was reduced during the Corona crisis. All together, the inflation rate increases by around 0.6 percentage points, according to the analysis by Deutsche Bank.
For 2024 overall, however, there are signs of a significant weakening in price inflation. The Ifo Institute only expects an inflation rate of 2.2 percent. In 2023, prices had risen by an average of 5.9 percent. However, the decline is unlikely to come quickly. Because more consumer-related companies want to increase their prices in the coming months, as a survey by the Ifo Institute suggests. “Inflation is therefore only likely to fall slowly in the coming months,” said Ifo economics chief Timo Wollmershäuser.
ECB Vice President sees “positive surprises”
According to ECB Vice President Luis de Guindos, inflation in the euro area could fall faster than the central bank expected in December. There have recently been “more positive surprises” when it comes to inflation, de Guindos told “Zeit”.
In December, the European Central Bank (ECB) forecast an inflation rate of 2.7 percent for the current year. At the time, the central bank expected a rate of 2.1 percent for 2025. The ECB will publish its next forecast in March.
The ECB is aiming for a stable price level in the medium term with an annual inflation rate of 2 percent for the currency area of the 20 countries. A faster decline in inflation could open up room for interest rate cuts.
In order to curb the now very high inflation, the euro currency watchdogs have raised key interest rates ten times in a row since the summer of 2022. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, more expensive loans are also a burden for the economy because loan-financed investments become more expensive.
mmq/dpa/Reuters