Germany’s consumers have to prepare for a significant increase in inflation again. After the decline in inflation stalled at a rate of 2.2 percent in April, economists are expecting higher price pressure in the coming months.
Many companies are planning to raise prices, for example in restaurants or drugstores. There are also other factors, as Commerzbank chief economist Jörg Krämer explains: “Due to the sharp rise in wages, consumer prices are likely to continue to rise faster in the coming months than is compatible with the ECB’s target of two percent. It is too early to give the all-clear on the inflation front .”
From the beginning of the year up to and including March, inflation in this country had steadily lost pace. Today the Federal Statistical Office confirmed its preliminary calculations, according to which the inflation rate in April was 2.2 percent, as in March. From March to April 2024, consumer prices in this country increased by 0.5 percent. Here too, the Wiesbaden statisticians confirmed their preliminary results published at the end of April.
Energy price controls have expired
Energy prices could increase in the next few months. Since April 1st, the regular VAT rate of 19 percent has applied again to natural gas and district heating. The reduced rate of 7 percent was due from October 1, 2022 to March 31, 2024. Politicians wanted to provide relief after the Russian war against Ukraine had made energy drastically more expensive.
According to the Federal Office, in April household energy prices were no longer as cheap, at an average of 1.2 percent, as in March when they fell by 2.7 percent. District heating in particular rose significantly in price in April, increasing by 27.4 percent year-on-year. However, electricity (minus 7.8 percent) and natural gas (minus 5.4 percent) became cheaper.
Food prices are rising again
According to the Federal Office, consumers had to pay 0.5 percent more for food this April than a year earlier; in March, food prices had fallen by 0.7 percent year-on-year.
While fresh vegetables (minus 8.8 percent) and dairy products (minus 5.4 percent) were cheaper in April than a year ago, prices for confectionery (plus 8.3 percent) and cooking oils (plus 7.4 percent), for example, rose ), fruit (plus 4.4 percent), meat (plus 2.2 percent) and bread (plus 2.1 percent). In addition, people had to dig deeper into their pockets when visiting restaurants than in the same month last year (plus 7.0 percent).
Inflation rate excluding food and energy weakened somewhat
After all: the extremely high inflation rates of the past two years are history. If you exclude the volatile prices for energy and food, the Federal Office calculates that core inflation will be 3.0 percent for April, after 3.3 percent in March 2024 and 3.4 percent in January and February.
According to economists, the further calming of the core rate in Europe’s largest economy, Germany, should encourage the European Central Bank (ECB) to decide to cut interest rates in June. The ECB is aiming for price stability in the euro area in the medium term with an inflation rate of two percent. In view of the weakening economy, calls have increased in recent months to lower interest rates again after the unprecedented series of increases in the fight against what was at times extremely high inflation.
For Germany, leading economic research institutes expect inflation to weaken significantly to 2.3 percent on average in 2024 after 5.9 percent last year. This could also boost private consumption as an important pillar of the economy. Because higher inflation rates weaken people’s purchasing power.