Inflation Consumer prices in Germany rose more slowly in August

After the price shocks of recent years, inflation in Germany slowed in August. However, only a few goods are really cheaper.

For the first time in over three years, the German inflation rate remained below the 2% mark in August. Consumer prices rose by 1.9% year-on-year, the slowest rate since March 2021, the Federal Statistical Office confirmed in its preliminary estimate.

Energy in particular was 5.1% cheaper than a year ago, while prices for services rose at an above-average rate of 3.9%. The price trend for car insurance was particularly strong, with prices rising by more than a quarter according to the surveys. Prices for social services (+7.8 percent) and restaurant services (+6.7 percent) also rose significantly. This is partly due to significantly higher salaries for employees.

At a high level, food has only become 1.5% more expensive than a year ago. However, individual products such as olive oil (+35.0%) have become much more expensive. This was due to poor harvests in the Mediterranean countries. Sweets such as honey, jam, sugar and other confectionery are also 5.0% more expensive. Dairy products, on the other hand, were cheaper than a year ago.

Long-awaited decline

After several years of very high inflation rates, the price pressure on consumers is easing. In July, statisticians had recorded a 2.3% rise in consumer prices after 2.2% in June. The last time a lower inflation rate was recorded was in March 2021 than in August, when prices were also 0.1% lower than in July. Core inflation excluding energy and food fell by 0.1 points to 2.8%.

Should inflation in Germany and the eurozone as a whole fall over the course of the year, this would give the European Central Bank scope to cut key interest rates. In June, it lowered its key interest rates by 0.25 percentage points for the first time since the wave of inflation. In July, the ECB kept key interest rates stable and left the door open for a rate cut at the Council meeting on September 12. A rate cut is expected on the financial markets. In the eurozone, the inflation rate for August was estimated at 2.2 percent.

Economists also expect the inflation rate to rise again by the end of the year due to the base values from the previous year. Even if the inflation rate remains below two percent in September and October, the problem has not yet been solved, warns Sebastian Becker from Deutsche Bank Research. The Mannheim-based ZEW economic institute may also only see an interim success, but not yet a breakthrough towards price stability.

According to the Japanese bank Nomura, market expectations regarding the extent and timing of possible interest rate cuts will grow. However, growth driven by private consumption will not materialize.

SDA