Skip to content

Inflation rate rises to 3.7 percent due to special effect

State pays heating costs at the end of 2022

Inflation rate rises to 3.7 percent due to special effect

After several declines, the inflation rate in Germany rose again slightly in December. Reason: in the comparative month of 2022, many Germans did not incur any heating costs. Over the year as a whole, the inflation rate was 5.9%.

After five consecutive declines, inflation in Germany rose again for the first time in December. Goods and services cost an average of 3.7 percent more than a year earlier, according to an initial estimate by the Federal Statistical Office. In November, the inflation rate had fallen to 3.2 percent, the lowest level for around two and a half years.

Economists surveyed by the Reuters news agency had expected an increase to 3.7 percent. At 5.9%, the inflation rate for 2023 as a whole was the second-highest level since reunification, surpassed only by the 6.9% achieved in 2022.

The reason for the increase at the end of the year is a special effect: in December 2022, the state took over the monthly advance payment for natural gas and district heating on a one-off basis in order to relieve households of energy costs, which had risen sharply following the Russian invasion of Ukraine. As a result, household energy in North Rhine-Westphalia, for example, became 5.6% more expensive this time compared to the previous year, with district heating in particular rising by 40.0%.

Food is still becoming significantly more expensive

"It is rare to see such a large base effect," said Holger Schmieding, Chief Economist at Berenberg Bank. "Apart from special statistical effects, inflationary pressure is continuing to ease." Core inflation - which excludes energy and food prices - fell from 3.8 to 3.5 percent across Germany.

Food remained the price driver in December. They increased in price by an average of 4.5 percent (November: +5.5 percent). Energy cost 4.1 percent more than a year earlier (November: -4.5 percent). Services increased in price by 3.2 percent (November: +3.4 percent).

The fight against inflation is likely to remain a tough affair in the new year, which is also due to several political decisions. Energy prices are likely to rise in January, for example, as the CO2 price has risen from 30 euros per tonne to not just 40 but 45 euros. In addition, the price brakes on gas and electricity expired at the turn of the year. Furthermore, gas and district heating customers are once again paying the full VAT rate of 19% instead of the reduced rate of 7%. It is also returning to the old level of 19 percent on food in restaurants. Deutsche Bank economists nevertheless expect the inflation rate to fall in 2024. It is expected to fall to 2.6 percent.

Read also: