Tax cut is having an effect: inflation rate remains at a low level

Will the VAT cut stimulate the German economy? The Federal Statistical Office gives it a clear sign: the inflation rate will remain low in August. However, it is difficult to measure the extent to which consumers benefit. Because other factors are currently also ensuring low prices.

The lower VAT also slowed German inflation in August. Consumer prices remained at the level of the same month last year, as reported by the Federal Statistical Office, confirming an earlier estimate. In July it fell for the first time since 2016 because of the tax cut, by 0.1 percent.

"One reason for the low inflation rate is still the temporary reduction in VAT," the statisticians explain. As a measure of the federal government's economic stimulus package in the fight against the corona crisis, this was reduced for six months from 19 to 16 percent on July 1, which is intended to boost consumption.

Many companies have promised to pass the reduction on to customers in full. "However, it is difficult to measure the extent to which the lower tax rates were passed on to consumers, since many other factors also influence price developments," said the Federal Office.

Energy prices have fallen significantly

Because of the Corona-related economic crisis, many companies are finding it difficult to enforce higher prices. Goods were noticeably cheaper in August by an average of 1.3 percent. Energy prices fell particularly sharply by 6.3 percent. Light heating oil cost 32.7 percent and refueling 11.3 percent less than in August 2019.

Food prices rose by just 0.7 percent after the price premium in July was 1.2 percent. Vegetables in particular became cheaper (-6.8 percent), fruit in particular (+5.8 percent) and meat and meat products (+4.8 percent) more expensive. Services cost one percent more than a year earlier, while net rents rose again by 1.4 percent.