Germany can breathe a sigh of relief: Inflation is slowing. In January, year-on-year inflation was 2.9 percent – the lowest value since June 2021. At that time, the inflation rate was 2.4 percent. In particular, the price situation for energy products has “visibly relaxed,” according to the Federal Statistical Office. At the same time, however, shopping in the supermarket remains expensive because prices for certain foods have risen significantly.
So there is sometimes a gap between pure statistics and what people in Germany feel every day in their everyday lives.
The good news is that energy products were 2.8 percent cheaper in January compared to the same month last year – even though the price controls for electricity and gas ended in December and the CO₂ price rose. Household energy became cheaper by 3.4 percent and fuel by 2.0 percent. Prices for solid fuels, heating oil, electricity and natural gas also fell. However, you had to pay 13.3 percent more for district heating than you did a year ago.
People are feeling the rise in food prices even more strongly: at 3.8 percent, they were still above overall inflation. Although the trend is downwards here too, the figures for some foods make one sit up and take notice: with an increase of 46 percent, olive oil, for example, became significantly more expensive. The producers cite delivery problems as the reason. Demand exceeds supply, which is why more are being called for.
Fruit and vegetable juices also rose in price by almost a fifth (18.3 percent) compared to January 2023. Snacks and confectionery in particular appear to be moving in price against overall inflation: chocolate became more expensive by 14 percent, chewing gum, gummy bears, candies, chocolates or similar luxury goods by 13.5 percent, chips by 13.4 percent and ice cream by 13.3 percent . Prices for vegetables and fruit also rose. Bananas, for example, rose in price by 12 percent compared to the same month last year. Consumers are also currently having to dig deeper into their pockets for sugar, jam, honey and other confectionery – they cost 10.7 percent more year-on-year. The surcharge for bread was 5.4 percent.
After all, the cheap energy prices – gas, for example, is cheaper than it has been in six months – still offset the higher food prices compared to overall inflation. In December 2023, the inflation rate was still 3.7 percent. The European Central Bank (ECB) is aiming for a value of 2 percent for the euro area. In order to achieve this, the monetary authorities have raised the key interest rates ten times in a row since the summer of 2022, now to 4.5 percent.
But why is perceived inflation still higher than actual inflation? “According to a current survey by the Allensbach Institute for Demoscopy, inflation is the biggest concern for three out of four Germans – even before the war in Ukraine,” says Dominik Enste, an expert in behavioral economics at the German Economic Institute (IW), to Capital. One reason for this is that consumers feel the price increase directly in their everyday lives and they are personally affected – unlike events that may be more geopolitically significant but have a more indirect impact on our everyday lives.
So personal experience and psychology play a role in the perception of inflation. “Even if prices decline or rise more slowly, the changing perception will still take some time,” says Enste. According to the expert, people perceive negative developments more quickly and more strongly than positive ones. In addition, perception is more focused on certain products than on the average. This explains why the price increases for basic foods have such a strong influence on perception.
Enste attributes the sometimes large differences within the food group to specific reasons. “Different prices arise primarily from different shortages on the markets. If harvests are smaller or supply chains are interrupted, prices can also fluctuate in the short term.” Especially if there is no diversity among producers, this could lead to strong price fluctuations, said the expert.
Sebastian Becker, analyst at Deutsche Bank Research, comments on the development rather cautiously: “As expected, inflation went into reverse again in January. So things are heading in the right direction again.” At the same time, the pronounced decline should not be overestimated, said Becker. A large part of this is due to a statistical base effect in energy.
However, it also acknowledges that the end of the state energy price brakes and the VAT reduction in the catering industry did not have a greater impact on prices. That is remarkable. “But it could also be that the higher VAT on food is only gradually passed on to the end customers and we are therefore yet to experience large parts of this price effect,” says Becker.
The expert expects that the overall inflation rate will continue to weaken over the course of the year. However, a lot depends on the further development of service prices. “In this area, the high wage agreements could lead to continued high price pressure and make it more difficult for the core rate to fall, which is still quite high,” said Becker.
