The inflation rate has reached its lowest point in several years.
After the significant price wave, recent years have seen a drop. Germany experienced a significant decrease in inflation in August. Major contributing factors to this reduction are primarily the decrease in energy prices.
Preliminary analytics by the Federal Statistical Office estimate that goods and services became 1.9% more expensive compared to last year, which is the first time this rate has fallen below the 2% mark in almost three and a half years. Economic experts surveyed by Reuters had expected an inflation decrease to 2.1%, as the rate had increased to 2.3% in July from 2.2% in June. From July to August, consumer prices even decreased by 0.1%.
However, economists are not completely optimistic. "Unfortunately, this trend is reversing," said Cyrus de la Rubia, chief economist of the Hamburg Commercial Bank. The inflation rate is expected to move towards 3% in the next six to twelve months. Chief economist Holger Schmieding of the Berenberg Bank agrees, claiming that the recent decrease in energy prices will cause the inflation rate to increase again in the autumn of 2023. "That's just the often-mentioned base effects."
Energy prices fell by an average of 5.1% compared to last year in August. Gasoline, diesel, and heating oil were all less expensive than before, according to the economists of the Landesbank Hessen-Thüringen. The gasoline price even reached its lowest point of the year recently, as reported by the ADAC. Services became more expensive by an above-average 3.9%. "High wage agreements continue to drive up service prices," said the Helaba. Many companies are attempting to pass on increased personnel costs to their customers. Food prices increased by an average of 1.5% compared to August of 2023.
The European Central Bank's inflation target for the currency area is 2%, and it is now within reach. The German inflation rate, calculated using uniform European standards, fell precisely to 2.0% in August. This development has led to increased speculation on financial markets about a further interest rate cut in September. The ECB initiated the interest rate turnaround in June, reducing the interest rate from its record high of 4.50% to 4.25%.
The decline in inflation to 1.9% in August, as mentioned in the preliminary analytics, marks the first time it has fallen below the 2% mark in almost three and a half years. However, economists like Cyrus de la Rubia and Holger Schmieding anticipate a rise in the inflation rate, moving towards 3% within the next six to twelve months, due to base effects and potential increases in energy prices.
