Highest value since 1993: inflation is reporting back with force

Highest value since 1993
Inflation is reporting back with force

Food, heating oil, fuel: prices keep rising and rising. The last time there was a higher inflation rate than this July was almost 30 years ago. A weighty reason for the current increase is a so-called base effect.

Life in Germany became much more expensive in July. Fueled above all by higher energy prices, the inflation rate jumped to its highest level in almost 30 years. Consumer prices in July were 3.8 percent above the level of the same month last year, according to the Federal Statistical Office.

The statisticians last determined a higher value in December 1993 at 4.3 percent at the time. In June 2021, the inflation rate was still 2.3 percent. The rise in energy prices (plus 11.6 percent) also fueled inflation in July. With the outbreak of the Corona crisis, crude oil prices collapsed last year due to low demand on the world market. They have since recovered.

In addition, since January 25 euros per tonne of carbon dioxide (CO2) has been due in Germany, which is produced when diesel, gasoline, heating oil and natural gas are burned. In particular, heating oil (plus 53.6 percent) and petrol (plus 24.7 percent) were significantly more expensive than in the same month of the previous year. Without taking energy products into account, the inflation rate would have been 2.9 percent in July 2021. In July, consumers had to pay 4.3 percent more for food than a year earlier.

A weighty reason for the current increase is a so-called base effect: In order to stimulate consumption in the Corona crisis, the federal government had reduced VAT for a limited period from July 1, 2020 to December 31, 2020. “The base effect, which began suddenly in July 2021, was to be expected, as the passing on of the tax relief to consumers a year ago had led to falling prices for many goods,” said Christoph-Martin Mai, head of the consumer prices unit at the Federal Statistical Office.

The regular VAT rates have been in effect again since January 2021, so goods and services tend to be expensive again. Inflation is likely to continue to rise in the coming months. So far, economists have largely considered this to be a temporary phenomenon.