Consumer prices - Inflation falls to 2.2 percent - services more expensive
The inflation in Germany is decreasing once again. In June, consumer prices were 2.2 percent above the level of the previous year - down from 2.4 percent in May, according to preliminary data from the Statistical Office in Wiesbaden. The inflation rate excluding food and energy, or core inflation, stands at 2.9 percent. Services saw the largest price increases, while energy became cheaper. According to statisticians, prices fell by 0.1 percent compared to May.
Economist Sebastian Dullien from the labor-affiliated Institute for Macroeconomics and Business Cycle Research (IMK) referred to the increase in May as an outlier. "The downward trend in inflation has resumed and taken hold again in June. In the coming months, we can expect a further slight decline in inflation."
Ifo expects inflation to continue falling
The Munich Ifo Institute also expects companies, based on a recent survey, to plan for a decrease in inflation, which is expected to fall below two percent in August. "The inflation rate should continue its decline and fall below the two-percent mark for the first time since March 2021 in August," says Ifo's chief economist Timo Wollmershauser.
Despite the high inflation rates of the past two years, leading economic research institutes had expected a significant decline in inflation in Germany to 2.3 percent - down from 5.9 percent in 2023. However, the decline has recently stalled. In May, inflation had gained momentum for the first time this year - primarily due to more expensive services. The decline in inflation had already come to a standstill at a rate of 2.2 percent in April. Economists pointed to rising wages, which can lead to price increases for companies.
Consumers continue to feel significantly higher food prices. Food prices have increased by an average of more than 30 percent over the past few years, according to a special evaluation by the Statistical Office for the period from January 2020 to May 2024, as reported by "Wirtschaftswoche".
Higher wage agreements and rising pensions strengthen purchasing power
If inflation in Germany and the Eurozone as a whole declines, the European Central Bank would have more room for interest rate cuts in the course of the year. It lowered interest rates by 0.25 percentage points for the first time since the inflation wave in the currency union in June. ECB President Christine Lagarde also dampened expectations of further interest rate hikes.
Higher inflation rates weaken the purchasing power of consumers. This dampens private consumption, which is an important driver of the German economy. Unions are trying to offset price increases with high wage agreements. Pensions are also rising significantly: Benefits 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 conflict puts pressure on households
In the long run, however, the purchasing power of consumers has decreased significantly amidst the enormous inflation of the past few years. The median household income grew by 5.1 percent, according to the Statistical Office's data from 2022 to 2023. However, the inflation rate was 5.9 percent. The latest data obtained by the Sahra Wagenknecht Bundle (BSW) from the authority shows an even larger gap when comparing 2021 and 2023. "The Germans have clearly become poorer," concluded BSW chair Sahra Wagenknecht from the figures.
Inflation accelerated rapidly after Russia's attack on Ukraine in early 2022 due to the higher cost of energy and consequently production and imported goods. The European Union imposed import restrictions on Russia and further sanctions. Moscow, in turn, halted gas exports to Germany via the Nord Stream pipelines.
- The previous year's month saw consumer prices in Germany at a level 2.2% higher, as reported by Destatis in Wiesbaden.
- Timo Wollmershäuser, chief economist at the Institut für Makroökonomie und Konjunkturforschung (IMK), expects a further decrease in inflation in the coming months.
- Foodstuffs have seen an average increase of over 30% in prices over the past few years, according to a special evaluation by Destatis.
- Companies, as suggested by the Ifo Institute, expect to plan for a decrease in inflation, which is expected to fall below two percent in August.
- Economist Sebastian Dullien from the IMK referred to the increase in May as an outlier, suggesting a resumed downward trend in inflation.
- Services saw the largest price increases, while energy became cheaper in the previous year's month, leading to a 0.1% price drop compared to May.
- Higher wage agreements and rising pensions aim to strengthen the purchasing power of consumers in the midst of decreasing inflation rates.
