2024-04-03 07:24:51
Inflation in Germany continues to decline. This is good news for now – but it shouldn’t deceive us in the long term.
Many people have been waiting for this for a long time: food prices are falling. For the first time since 2015, supermarket shopping in March was not more expensive, but cheaper compared to the same month last year. Admittedly, after the extreme price increases of the past two years, the decline of 0.7 percent is really only a mini-minus; the price level remains high.
Nevertheless, the decline in inflation to 2.2 percent announced on Tuesday by the statistics office in Wiesbaden is good news that we can be happy about. Given rising wages, purchasing power increases, everyone can afford more with their money, and we are becoming a little richer again. The extremely high waves of inflation are finally over.
So all’s well that ends well? Not quite.
Too early for the all-clear
The hoped-for consequences of the decline in inflation will probably still be a long time coming: the European Central Bank (ECB) is unlikely to lower the key interest rates again until summer at the earliest – which it recently raised at a record pace in the fight against inflation. And even then, the interest rates on loans for bank customers and home builders are unlikely to fall immediately, as many financial institutions have already anticipated the expected interest rate developments.
In addition, it is still too early to give a general warning about inflation; despite the recent decline, the announced target of annual inflation of 2 percent can hardly be achieved as quickly as the monetary authorities hope. The reason for this is the recent sharp rise in wages, especially in the service sector.
Higher wages lead to further rising prices
An effect is likely to come into play here that has not yet played a significant role in inflation, but that many economists fear: the so-called wage-price spiral, in which entrepreneurs try to generate higher wage costs by raising prices.
As a result, the core inflation rate, which reflects price developments excluding food and energy, could remain at the current high level of more than 3 percent for a longer period of time – and thus be responsible in the long term for us having to get used to (slightly) rising prices.