Prices in Germany continue to rise, but inflation has passed its peak. This is also due to a statistical effect.
Price pressure in Germany is noticeably easing. In September, the inflation rate was probably only 4.5 percent, according to the Federal Statistical Office. This is the lowest value since February 2022, when the Russian invasion of Ukraine began. To put things into perspective: in August prices were 6.1 percent higher than a year earlier.
The main reason for this significant decline is the so-called base effect. This means that the economic policy relief measures taken by the federal government after the start of the Russian war of aggression have long since ended, but continue to have an impact on inflation developments.
These are two temporary measures that were intended to temporarily relieve households in Germany from the consequences of the sharp rise in energy prices – the fuel discount and the 9-euro ticket on local public transport. They were valid from June to August 2022. After that, inflation rose sharply.
Inflation is losing momentum
Now this development is reversing. This is because inflation – i.e. the general increase in prices – is usually measured in comparison to the same month in the previous year. For this purpose, statisticians put together a so-called shopping cart. It includes the goods and services that households typically spend money on. These are weighted differently. Things on which more is spent – such as energy – are weighted more heavily than things on which less is spent, including hearing aids.
This is where the base effect comes into play. From June to August, the general price level was compared with the level in the summer of last year, when fuel discounts and 9 euro tickets had a price-dampening effect. This effect is removed from the comparison in September, which explains the sharp decline in the inflation rate.
“These base effects should continue to have an impact in the coming months,” says BayernLB chief economist Jürgen Michels. This should contribute to a further decline in the inflation rate to around 3.5 percent. “Then these base effects will expire and the decline in inflation will likely become much slower,” says the economist. “We are unlikely to see sustained inflation rates close to 2 percent again until 2025.” The European Central Bank sees price stability achieved at this level.