2024-08-30 02:06:33
Lowest value in more than three years
Inflation falls to 1.9 percent in August
Updated on 29.08.2024 – 14:32Reading time: 3 min.
Inflation in Germany is falling. While prices in July were 2.3 percent higher than in the same month last year, they were only 1.9 percent higher in August.
Inflation in Germany is falling significantly. In August, consumer prices were 1.9 percent higher than in the same month last year, according to the Federal Statistical Office. According to the evaluations of the state statistical offices, energy in particular was cheaper than a year ago, while prices for services rose above average.
Overall, price pressure on consumers is decreasing. In July, statisticians recorded a rise in consumer prices of 2.3 percent, after 2.2 percent in June and 2.4 percent in May. In August, prices were 0.1 percent lower overall than in July. Core inflation excluding energy and food fell by 0.1 points to 2.8 percent.
Economist Sebastian Dullien, head of the trade union-affiliated Institute for Macroeconomics and Business Cycle Research (IMK), considers the decline in inflation to be “very good news”. “There are increasing signs that inflation in Germany has been finally defeated,” he said on Thursday in an initial reaction to the figures. “The often expressed concern that the decline in inflation in recent months could only be temporary was misplaced.”
The year-on-year decline in energy prices continues to play a noticeable role in dampening inflation. “However, the decline in the core rate, i.e. inflation excluding energy and food, also shows that inflationary pressure is continuing to ease across the board.”
Economists had already expected a trend towards stable prices in the summer. The Munich-based Ifo Institute expects an inflation rate of less than two percent in Germany in the coming months. This is based on a survey of companies on their pricing plans published on Thursday.
Inflation has so far been weighing on consumers’ spending habits. Despite rising wages, many people are still holding on to their money. According to the Federal Statistical Office, private consumption fell by 0.2 percent in the second quarter compared to the previous quarter. In addition, consumer sentiment deteriorated in August, as shown by the consumer climate study by the Nuremberg institutes GfK and NIM. Expectations regarding income and the economy have fallen, as has the propensity to buy – the propensity to save, on the other hand, has increased.
In the longer term, consumer purchasing power has fallen during the wave of inflation. According to the Federal Statistical Office, median household income grew by 5.1 percent from 2022 to 2023 – but the inflation rate was 5.9 percent. Inflation accelerated rapidly after the Russian attack on Ukraine in early 2022 because energy in particular became much more expensive.
But Germany’s workers have increasingly made up for the loss of purchasing power during the period of high inflation. In the second quarter, increases in gross wages exceeded the development of consumer prices for the fifth time in a row. The Federal Statistical Office puts the increase in real wages for the second quarter at 3.1 percent.
Given the strong wage increases, private consumption remains the main hope for the German economy, which shrank by 0.1 percent in the second quarter. Economists expect little improvement for the second half of the year. The German Bundesbank is only expecting minimal growth of 0.3 percent for the current year.
The extremely high inflation rates of the past two years are history. On average for the year, leading economic research institutes expected a significant slowdown in inflation in Germany to 2.3 percent – from 5.9 percent in 2023.
But consumers are feeling the sharp rise in prices when shopping or in restaurants. Food prices have increased by an average of more than 30 percent in recent years, according to a special analysis by the Federal Statistical Office for the period from January 2020 to May 2024.