Customers reconsider shopping habits due to economic concerns. - This year has seen a minor increase in inflation rates for the first time.
Germany's inflation rate shows a surge for the first time this year as service prices rise, causing consumer prices to increase by 2.4% in May compared to the previous year. The Federal Statistical Office confirmed these preliminary data. Inflation had stalled in April at a rate of 2.2%. The high rates seen in prior years have dissipated.
The rapid inflation rate has primarily been driven by increasing service prices, as stated by Ruth Brand, the Federal Statistical Office's chief. She also mentioned that energy and food prices have been holding down overall inflation since the start of this year.
Services saw a 3.9% price hike in May compared to the previous year. Insurance companies raised their prices by 13.0%, while social institutions saw a 7.7% increase and restaurant visits cost 6.9% more. The implementation of the Germany Ticket in May 2023 caused a price decrease that no longer factors into the comparison with the previous year.
Food prices inched up by 0.6% more than in the prior month. Olive oil and cooking fats saw the most significant increase at 8.4% and 48.5%, respectively. However, dairy products became 5.1% cheaper, and fresh vegetables were 3.5% less expensive.
Energy products were 1.1% less costly in May than they were a year ago, even though the regular VAT rate of 19% resumed for natural gas and district heating starting April 1. Initially, the government reduced the VAT rate to 7% to mitigate the high energy prices caused by the Russian invasion of Ukraine. Prices for electricity and natural gas dropped to -7.4% and -5.2%, respectively. However, heating expenses soared by 27.9% compared to the previous year.
The Bundesbank predicts that inflation will significantly decline this year, particularly in energy and food. However, inflation will remain stubborn in services due to wage hikes and their subsequent cost pressures. In its latest economic forecast, the central bank expressed this expectation.
Inflation gradually rose by 0.1% in May compared to April, according to the data released by the statisticians. The leading economic research institutes project that overall inflation in the Eurozone's largest economy will drop to 2.3% for the year, declining from the 5.9% recorded the preceding year. Grounded in the loss of purchasing power for consumers, higher inflation rates can weaken their financial situation.
Last week, the European Central Bank carried out its initial interest rate cut since the strong inflation wave in the currency area. The bank reduced the main refinancing rate by 0.25 percentage points. Notably, ECB President Christine Lagarde downplayed speculations about additional rate cuts. "We have not yet won the battle," she remarked in a recent interview. The central bank strives for medium-term price stability in the eurozone with a target of a 2% annual inflation rate. Consumer prices in May rose by 2.6% compared to the previous year, up from 2.4% in April.
