The inflation rate has reached its lowest point in nearly three and a half years.
Low costs of energy have led Germany's inflation rate to dip below the 2% threshold for the first time in nearly 3.5 years. Consumers witnessed an average price increase of 1.9% annually in August, as reported by the Federal Statistical Office in a preliminary assessment. Professional economists, as polled by Reuters, anticipated a decrease in the inflation rate to 2.1%, following its climb to 2.3% in July from 2.2% in June. Even more intriguingly, consumer prices actually decreased by 0.1% from July to August.
However, the financial experts are hesitant to issue a green light. "Sadly, it's headed back up from here," commented the Chief Economist Cyrus de la Rubia of Hamburg Commercial Bank. Over the next six to twelve months, the rate is predicted to approach 3%. The reduction in energy costs later in 2023 is expected to boost the inflation rate once more, as stated by the Chief Economist Holger Schmieding of Berenberg Bank. "That's what they label base effects."
In August, energy prices declined by an average of 5.1% annually. The economists of Landesbank Hessen-Thüringen emphasized that gasoline, diesel, and heating oil were cheaper than before. The ADAC even reported that the gasoline price plummeted to its lowest level of the year in recent days. Conversely, services experienced an above-average increase of 3.9%. "High wage settlements continue to fuel the rise in service prices," said Helaba. Various companies are attempting to transfer their escalating personnel expenses to their customers. The cost of food rose by a mere 1.5% compared to August 2023.
The European Central Bank has set a 2% inflation target for the currency union, which is now within reach. The German inflation rate, calculated using European uniform standards, dropped exactly to 2% in August. This has sparked speculation on financial markets about an additional interest rate reduction in September. The ECB already altered course on interest rates in June, when it reduced the rate from its all-time high of 4.50% to 4.25%.
The initial decrease in energy costs contributed to Germany's inflation rate dropping below 2%, as mentioned earlier in the text. Despite this, several financial experts predict a rise in the inflation rate approaching 3% over the next six to twelve months.
