Despite a slowdown in March, people in Germany continue to feel the high inflation in everyday life. Although the rise in energy prices has slowed, consumers are having to dig deeper into their pockets for food. Overall, consumer prices rose by 7.4 percent in March compared to the same month last year. The Federal Statistical Office confirmed an initial estimate on Thursday. In January and February, a rate of 8.7 percent was recorded.
“For private households, the renewed increase in food prices had a particularly significant impact in March,” explained Ruth Brand, President of the Federal Statistical Office. Compared to the same month last year, food prices increased by 22.3 percent. Inflation increased after 21.8 percent in February and 20.2 percent in January. Among other things, dairy products and eggs (plus 34.6 percent), vegetables (plus 27.3 percent) and bread and cereal products (plus 23.8 percent) became significantly more expensive.
Braked energy price spiral
By contrast, the rise in energy prices weakened significantly in March. Overall, energy prices rose by 3.5 percent compared to the same month of the previous year after growth of 19.1 percent in February. The effect was noticeable that energy prices had skyrocketed a year ago after the Russian war of aggression. The government price brakes for gas and electricity, which have been in effect since March 1, 2023, have also had an impact on prices.
Natural gas prices climbed 39.5 percent. Within a year, electricity rose by 17.1 percent and district heating by 16.4 percent. Light heating oil, on the other hand, fell by 35.7 percent and visits to the gas station by 16.1 percent.
Overall, the inflation rate was below the 8 percent mark for the first time since August 2022. At that time, an annual rate of 7.0 percent was recorded. Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro.
Compared to the previous month of February, consumer prices rose by 0.8 percent in March.
Most of the costs already passed on
Because fewer and fewer companies want to raise their prices, the Ifo Institute expects inflation to fall. “Companies have already passed on a large part of their increased costs to customers, while demand has decreased at the same time,” said Ifo economics chief Timo Wollmershäuser recently. “This means that inflation should slowly decline in the coming months.”
However, according to economists, people in Germany cannot hope for a thorough easing in prices this year. Leading economic research institutes, for example, expect an inflation rate of 6.0 percent on average for the year. According to revised data from the Federal Office, consumer prices had increased by 6.9 percent in 2022.
After the Russian war of aggression in Ukraine, inflation was initially driven primarily by higher energy and food prices. In the meantime, it is becoming increasingly broad. “Inflation has become more widespread and potentially more persistent,” said ECB Council member Francois Villeroy de Galhau recently. The head of the French central bank referred to the core rate of inflation, which excludes the volatile prices for energy and food.
In Germany, the rate excluding energy and food was 5.8 percent in March, after 5.7 percent in February and 5.6 percent in January. The statisticians explained that this shows that inflation is also high in other goods sectors. For example, furniture and lighting rose by 10.3 percent.
The ECB is aiming for price stability in the euro area in the medium term with an inflation rate of 2 percent. This target has been a long way off for months. In March, the inflation rate in the common currency area was 6.9 percent after 8.5 percent in February. The core rate rose to 5.7 percent from 5.6 percent. In the fight against high inflation, the central bank has raised interest rates in the euro area six times in a row since last summer. Rising interest rates can counteract high inflation rates because loans become more expensive and this slows down demand.
