February inflation details
Energy is becoming cheaper and food prices are rising less rapidly
March 12, 2024, 10:36 a.m
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Good news for consumers: Energy costs less in February than a year earlier and the rise in food prices is slowing. This could also benefit the economy.
Dampened by lower energy prices, inflation in Germany weakened in February to its lowest level since summer 2021. According to the Federal Statistical Office, consumer prices were 2.5 percent higher than in the same month last year. The authority confirmed preliminary data from the end of February. The inflation rate was last lower in June 2021 at 2.4 percent. An annual inflation rate of 2.9 percent was recorded in January of the current year and 3.7 percent in December.
“The price situation for energy continues to ease. The rise in prices for food has slowed significantly and is now below overall inflation for the first time in more than two years,” explained head of the authority Ruth Brand.
Economists expect inflation to fall further over the course of the year. Higher inflation rates reduce the purchasing power of consumers. People can afford one euro less. Many people turned their back on consumption last year.
Electricity and natural gas cheaper – district heating more expensive
Despite the energy price brakes that expired at the beginning of the year and the increase in the CO2 price to 45 euros per ton of carbon dioxide (CO2), energy became cheaper in February for the second month in a row. Prices fell by 2.4 percent compared to the same month last year. Consumers had to pay less than a year before, especially for firewood, wood pellets or other solid fuels (minus 11.2 percent), electricity (minus 7.9 percent) and natural gas (minus 7.5 percent). Fuel prices fell by 0.4 percent. District heating, on the other hand, rose significantly in price by 21.7 percent. Light heating oil cost 2.2 percent more than a year earlier.
People had to pay 0.9 percent more for food within a year. The price increase thus weakened significantly. In January, food prices rose by 3.8 percent. Fresh vegetables (minus 10.6 percent) and dairy products (minus 5.1 percent) in particular became cheaper in February.
After the Russian war of aggression against Ukraine began in February 2022, energy and food prices in particular rose sharply, driving up inflation overall. The core rate excluding the volatile prices for energy and food was 3.4 percent, as in January. Services rose in price by 3.4 percent within a year. Service prices are particularly closely watched by economists and central bankers because of their high wage share and upcoming collective bargaining rounds. Compared to the previous month of January, consumer prices rose by 0.4 percent in February. Here too, the statisticians confirmed preliminary data.
Good for the economy
According to the latest forecasts from the IFO Institute and the Kiel Institute for the World Economy (IfW), consumer prices are only expected to rise by an average of 2.3 percent this year after 5.9 percent in 2023. Federal Minister of Economics Robert Habeck recently assumed that wage increases will be above the inflation rate this year. The expectation is that employees will also spend the money and thus stimulate private consumption. Private consumption is an important pillar of the German economy.
The European Central Bank (ECB) is aiming for price stability in the euro area in the medium term with an inflation rate of two percent. In February, the so-called HICP, which the ECB uses for its monetary policy, was 2.7 percent in Germany. HICP stands for Harmonized Index of Consumer Prices and is used to make price changes in the Eurozone internationally comparable.
Since the summer of 2022, the euro currency watchdogs have counteracted the temporarily significant rise in inflation in the euro area and Germany with ten interest rate increases in a row. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, more expensive financing is also a burden for companies and private investors. In view of the weakening economy, there are increasing calls to lower interest rates again.