Less than two percent
Inflation rate falls to lowest level in years
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The big price wave of the past few years is over. Inflation in Germany weakened significantly in August. Low energy prices are primarily responsible.
Falling energy prices pushed the German inflation rate below the two percent mark in August for the first time in around three and a half years. Goods and services only increased in price by an average of 1.9 percent compared to the same month last year, as the Federal Statistical Office announced in an initial estimate. Economists surveyed by the Reuters news agency had only expected the inflation rate to fall to 2.1 percent, after rising to 2.3 percent in July – from 2.2 percent in June. From July to August, consumer prices even fell by 0.1 percent.
Economists are still not giving the all-clear. “Unfortunately things are looking up again from now on,” said chief economist Cyrus de la Rubia from Hamburg Commercial Bank. In the next six to twelve months the rate is likely to move towards three percent. The fall in energy prices in autumn 2023 means that the inflation rate will soon rise slightly again, said chief economist Holger Schmieding from Berenberg Bank. “Those are the base effects that are often cited.”
In August, energy prices fell by an average of 5.1 percent compared to the same month last year. “Gasoline, diesel and heating oil were cheaper in August than before,” emphasized the economists at Landesbank Hessen-Thüringen. According to the ADAC, the price of gasoline has temporarily fallen to its lowest level of the year in the past few days. Services, on the other hand, became more expensive than average at 3.9 percent. “High wage agreements continue to drive up service prices,” said Helaba. Many companies are trying to pass on increased personnel costs to their customers. On average, 1.5 percent more was demanded for food than in August 2023.
The European Central Bank's inflation target for the currency area is two percent and is now within sight. The German inflation rate, calculated according to uniform European standards, fell to exactly 2.0 percent in August. There is therefore speculation on the financial markets that the next interest rate cut will be in September. The ECB completed a downward turnaround in interest rates in June when it pushed the interest rate from a record high of 4.50 to 4.25 percent.
