“Still too much pressure in the boiler”: Inflation rate falls less than hoped in August

“Still too much pressure in the boiler”
Inflation rate falls less than hoped in August

Inflation in Germany weakened again in August. Goods and services cost an average of 6.1 percent more than a year ago. However, economists had expected a smaller increase.

The long-awaited significant drop in inflation in Germany did not materialize in August. Consumer prices were an average of 6.1 percent higher than in the same month last year, as the Federal Statistical Office announced for the time being. Inflation was 6.2 percent in July and 6.4 percent in June. Economists had expected a more significant decline to 6.0 percent.

“There is still too much pressure in the inflation chamber,” said economist Bastian Hepperle from the Hauck Aufhäuser Lampe bank. Food remained the number one price driver: it cost 9.0 percent more than a year earlier, after 11 percent in July. Energy prices rose by 8.3 percent (July: 5.7 percent), while services cost 5.1 percent (July: 5.2 percent) more. The inflation rate excluding food and energy, the so-called core inflation, remained at 5.5 percent.

“But the brisk decline in producer and import prices makes us confident that the surge in inflation will continue to decrease in the coming months,” said economist Hepperle. In July, import prices fell by 13.2 percent year-on-year, more than they had in more than 36 years. Since the German economy obtains many preliminary products and raw materials from abroad, falling import prices also affect general inflation with a delay.

“The inflation push from the outside is decreasing significantly, which also speaks for a further decline in the inflation rate,” said Commerzbank economist Ralph Solveen. “However, at the same time the internal price pressure has increased, among other things due to the sharp rise in wages, so that the inflation problem is far from being solved.”

Claus Niegsch from DZ Bank points out that, despite the positive development, consumers “continue to turn over every euro twice, also because of the still sharp rise in food prices”. The ZEW Institute points out that inflation for tradespeople, package tours and the costs of nursing homes is still in the double digits. The decline in purchasing power is noticeable for most. “This situation leads to ongoing uncertainty and fuels concerns about a loss of prosperity. Such a development speaks against the fact that private consumption could become a pillar of economic development again in the foreseeable future.”

That’s why the KfW Bank also speaks of a tough test of patience for consumers. But the tide is slowly turning. “Strong wage increases mean more money in the wallet and in September we can finally expect a substantial decline in consumer price inflation when last year’s relief packages fall off the basis of comparison. This should give the sluggish economy a boost.”

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