2024-09-30 21:50:27
After the Russian invasion of Ukraine, inflation in Europe shot through the roof. These times seem to be over.
Inflation in Germany has fallen to its lowest level in around three and a half years. In September, consumer prices were 1.6 percent higher than in the same month last year, as the Federal Statistical Office in Wiesbaden announced in an initial estimate. The last time the inflation rate was lower was in February 2021.
Consumers had to pay significantly less for energy in September than in August (minus 7.6 percent), while food prices rose slightly and services became more expensive.
Price inflation has already weakened significantly in the past few months. The inflation rate was 1.9 percent in August after 2.3 percent in July. The much-noticed core inflation excluding the highly fluctuating prices for energy and food fell slightly from 2.8 to 2.7 percent. Compared to the previous month of August, consumer prices remained unchanged.
Economists assume that inflation will continue to fall. In their recently published autumn report, the leading economic research institutes expect consumer prices to rise by 2.2 percent for the current year – after 5.9 percent in 2023. Next year, inflation will then only be 2.0 percent.
According to a current survey by the Ifo Institute, fewer and fewer companies in Germany want to increase their prices. Ifo price expectations fell in September to their lowest level since February 2021.
However, the decline in inflation in Germany has not yet boosted consumer spending. According to the latest GfK consumer climate index, sentiment remained at a very low level in September – despite increased wages. Many people preferred to save their money instead of spending it on building a home or on consumption, the economic experts also found in their autumn report.
This does not bode well for the currently weakening economy, as private consumption is seen as an important support for the weak German economy, which is on the brink of recession. Experts also blame the slowing consumption on consumers’ long-term decline in purchasing power. The Russian attack on Ukraine triggered a wave of inflation – after which energy prices rose rapidly.
If inflation falls in Germany and in the euro area as a whole, this would give the European Central Bank (ECB) scope for further cuts in key interest rates. Most recently, the ECB lowered the benchmark deposit interest rate by 0.25 percentage points to 3.5 percent. The first interest rate cut since the wave of inflation occurred in June. The stock exchanges are firmly expecting further interest rate hikes in the coming months. But observers are wondering whether the ECB will follow up with its next interest rate decision in October.