Inflation falls to two percent target – energy and food slow inflation
Wiesbaden. Cheaper energy and lower food price increases: The inflation rate in Germany has surprisingly fallen to its lowest level in over six months. In June, consumer prices were 2.0 percent higher than in the same month last year, according to the Federal Statistical Office in Wiesbaden. Inflation was last this low in October. In May, the rate was still 2.1 percent.
Deka Chief Economist Ulrich Kater believes inflation has been tamed: "Interest rates have fallen, the acute threat of inflation is over." Cheaper energy again contributed to the decline in the inflation rate (-3.5 percent), although the decline is slowly leveling off. The conflict between Israel and Iran, which had temporarily driven up crude oil and fuel prices, also had largely no consequences. Food prices rose by 2.0 percent, following an increase of 2.8 percent in May.
Inflation in services, including insurance, package holidays, and car repairs, remains persistent. In June, prices for services climbed by 3.3 percent – a result of rising wages. Consumer prices overall stagnated from May to June of this year.
Despite the moderate inflation rate, consumers in Germany are feeling the impact of significantly increased prices on their everyday shopping. Butter, chocolate, fruit, and vegetables, for example, have increased in price more than the entire shopping basket.
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After the Russian invasion of Ukraine in 2022, inflation skyrocketed, and energy and food prices climbed rapidly. Inflation averaged 6.9 percent in 2022 and 5.9 percent in 2023, before declining to 2.2 percent last year. As a result, many consumers have lost purchasing power. They can afford less for one euro.
Despite the renewed decline, Commerzbank Chief Economist Jörg Krämer continues to see high inflation risks. "Excluding the volatile prices of energy and food, inflation barely fell in June and remains above the ECB's target of two percent." According to the statisticians, this "core inflation" was 2.7 percent in June, down from 2.8 percent in the previous month.
The future of inflation has become more uncertain due to US President Donald Trump's aggressive tariff policy. Tariffs could have an impact on the prices of industrial goods and indirectly affect consumers. The EU is trying to avert a trade war in negotiations with Washington.
The billions planned for defense and infrastructure could also impact inflation in Germany. Some economists expect inflation to rise because the additional funds will also create additional demand. However, the strong euro is having a dampening effect on prices: It has appreciated significantly against the dollar, thus tending to make imports to Germany cheaper.
The Bundesbank expects the inflation rate in Germany to fluctuate around the two percent mark in the coming months. This would correspond to the target of the European Central Bank, which assumes price stability at this level. Economists, including the German Council of Economic Experts, expect an annual average of around two percent to also emerge in 2025.
RND/dpa
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