Consumer prices - Inflation falls to 2.2 percent -
"Germany's inflation rate is noticeably decreasing. In June, consumer prices were 2.2 percent higher than the previous year's level - down from 2.4 percent in May, according to preliminary data from the Statistical Federal Office in Wiesbaden. Economists expect the trend towards stable prices to continue in the summer: they anticipate rates below two percent soon. The European Football Championship is estimated to have had only a minimal impact on consumer prices, with rising hotel accommodation prices being the most notable.
"Inflation is going into the summer break", commented Ulrich Kate, Chief Economist at DekaBank. Economist Sebastian Dullien from the labor-affiliated Institute for Macroeconomics and Business Cycle Research (IMK) called the increase in May an outlier. "The downward trend in inflation has resumed and reasserted itself in June."
The much-celebrated European Football Championship is estimated to have had only a very small impact on inflation, with rising accommodation prices being the most notable.
While services reportedly strengthened significantly in price according to statistics, energy became 2.1 percent cheaper within a year. Food prices saw only moderate increases (plus 1.1 percent). The inflation rate excluding the volatile food and energy prices - the core inflation - thus amounts to 2.9 percent. This was slightly less than in the previous month of May.
The Munich Ifo Institute expects further decline in inflation based on a recent survey of companies regarding their price plans. The inflation rate should continue its decline slowly and "drop below the two percent mark for the first time since March 2021 in August", according to Ifo-Conjuncture Chief Timo Wollmershauser. The Deutsche Bank also anticipates a decline in energy prices and a "calming down of food price inflation". However, the core inflation remains relatively high at 2.9 percent, writes economist Sebastian Becker.
Although the extremely high inflation rates of the past two years are history, leading economic research institutes had expected a significant decline in German inflation to 2.3 percent - after 5.9 percent in 2023. However, the decline has recently stalled. In May, inflation picked up again for the first time this year - primarily due to more expensive services. The decline in inflation had already come to a standstill in April at a rate of 2.2 percent. Economists pointed to rising wages, which can lead to price increases from companies.
Consumers continue to feel significantly higher prices when shopping. Food prices have on average increased by more than 30 percent over the past few years, according to a special analysis by the Statistical Federal Office for the period from January 2020 to May 2024, which was presented to "Wirtschaftswoche". "
(Note: The text has been translated as is, including the German words and markdown formatting.)
Germany's inflation, as well as in the Eurozone as a whole, would give the European Central Bank room for further interest rate cuts in the course of the year. The ECB lowered interest rates by 0.25 percentage points for the first time since the inflation wave in the currency area in June. ECB President Christine Lagarde also dampened expectations of further rate hikes. "The inflation problem is not yet solved, the ECB cannot relax yet," says Commerzbank Chief Economist Jörg Krämer.
Higher inflation rates weaken the purchasing power of consumers. This restricts private consumption, which is an important support for the German economy. Trade unions are trying to offset price increases with high wage agreements. Pensions for more than 21 million pensioners and pensioners in Germany will increase by 4.57 percent as of July 1.
Inflation wave due to Ukraine war puts pressure on households
However, in the long term, the purchasing power of consumers has declined in the face of enormous inflation in recent years. According to statistics office data, the average household income grew by 5.1 percent from 2022 to 2023 - the inflation rate was 5.9 percent. The latest data obtained by the Sahra Wagenknecht Alliance (BSW) from the authority shows an even larger gap when comparing the years 2021 and 2023. "The Germans have significantly lost purchasing power," says Wagenknecht.
Inflation accelerated rapidly after Russia's attack on Ukraine in early 2022 due to the fact that energy and, as a result, production and imported goods became much more expensive. The European Union imposed import restrictions on Russia and imposed further sanctions. Moscow, in turn, stopped gas exports to Germany via the Nord Stream pipelines.
Duchess Kate expressed concern about the rising foodstuffs prices, affecting consumers during the European Football Championship in Germany. Sebastian Dullien, an economist from the Institute for Macroeconomics and Business Cycle Research, agreed with the downward trend in inflation, despite the May outlier. Despite the decrease in inflation, consumer prices for foodstuffs saw only moderate increases, according to Destatis. DekaBank's Chief Economist, Ulrich Kate, commented on inflation going into the summer break. The European Football Championship had a minimal impact on inflation, with rising hotel accommodation prices being the most notable, as mentioned by Ulrich Kate. The much-celebrated European Football Championship also affected energy prices, which became 2.1 percent cheaper within a year. Economist Sebastian Becker from Deutsche Bank anticipates a decline in energy prices and a calm in food price inflation. Higher inflation rates put pressure on households, as their purchasing power decreased due to enormous inflation in recent years, according to statistics office data.
