Inflation in Germany remains stubbornly high. According to initial calculations by the Federal Statistical Office, consumer prices in February were 8.7 percent higher than in the same month last year. In January, the annual inflation rate had already risen to 8.7 percent after the one-off government relief for gas and district heating customers was abolished.
Inflation has been fueled by energy and food prices for months. According to the Wiesbaden authority on Wednesday, provisional figures show that energy cost 19.1 percent more than a year earlier. Food prices increased by 21.8 percent within a year.
According to calculations by the Federal Office, consumer prices are expected to rise by 0.8 percent from January to February 2022. In the reporting month of January 2023, the Federal Office switched the calculation basis to the base year 2020.
Economists do not expect a thorough easing of prices in the current year, even if the peak of the increase is likely to have been passed. Because according to economists, inflation has now become broader and affects many other products apart from energy and food. Rising wages could also fuel inflation. The government price brakes for gas and electricity, which will apply retrospectively from March 1, 2023 to January 1, 2023, are likely to have a dampening effect in the current year.
Bundesbank expects inflation to fall
The federal government is anticipating an average inflation rate of 6.0 percent for 2023. According to the latest information, the Bundesbank expects inflation in Germany – as measured by the harmonized index of consumer prices (HICP), which is decisive for monetary policy in the euro area – to fall to between 6 and 7 percent in the current year. According to provisional calculations by the Wiesbaden statisticians, the HICP in Germany in February was 9.3 percent above the level of the same month last year.
In the medium term, the European Central Bank (ECB) is aiming for price stability in the euro area with an inflation rate of two percent. This target has been a long way off for months. Although inflation slowed again in January, consumer prices in the currency area, which now has 20 countries, were 8.6 percent above the level of the same month last year.
The ECB is attempting to curb persistently high inflation by raising interest rates. Higher interest rates make loans more expensive. This can slow down demand and counteract high inflation rates. After five increases in a row since July, the key interest rate in the euro area is now 3.0 percent. For the ECB meeting on March 16, the monetary watchdogs have announced another rate hike of 0.5 points.
Higher inflation rates reduce the purchasing power of consumers because they can then afford less for one euro. Sharp increases in energy prices, which are a key driver of inflation, are also a burden for companies.
