Recovering Inflation Rate
Germany's Inflation Remains Steady as Energy Prices Fall
Inflation in Germany stayed constant in May at 2.1%, slightly above the European Central Bank (ECB) target of 2%. The stable inflation rate reflects mixed trends in both energy and food prices, as reported by the Federal Statistical Office.
Energy prices saw a significant decrease, dropping by 4.6% compared to the previous year. This decline is attributed to falling world market prices for oil, which economists attribute to the ongoing trade war initiated by US President Donald Trump, putting pressure on global economic growth and reducing oil demand.
On the other hand, food prices continued to climb, increasing by 2.8% year-on-year. Specific categories experiencing the most significant price increases include non-alcoholic beverages in North Rhine-Westphalia, which rose by 8.9%, and fruit, which saw a 8.6% price hike. Services also became more expensive, rising by 3.4%, while goods stayed relatively stable, with a 0.9% increase. The core inflation rate, which excludes food and energy, decreased slightly to 2.8%.
The current German inflation rate, calculated according to European standards, remains marginally above the ECB's target. As a result, the central bank has reduced its key interest rate seven times in succession to ease inflationary pressure.
However, Jörg Krämer, chief economist of Commerzbank, points out a flaw in the contradictory May inflation data. Excluding volatile food and energy prices, the inflation rate remains significantly above the ECB's target at 2.8%. While the pace of price growth for services has slowed down, the cost of goods has recently started to rise again, fueling Krämer's assertion that inflation persists.
Reports from various sources suggest that the trend of declining energy prices could continue in the future, thanks to falling wholesale energy prices and ongoing government efforts to stabilize energy costs and ensure energy security. Yet, rising food prices attributable to global supply chain disruptions and agricultural and production costs may counteract these positive effects, maintaining an upward pressure on overall inflation rates in Germany.
Sources: ntv.de, jpe/rts
- Inflation
- Germany
- ECB
- Energy prices
- Food prices
The stable inflation rate in Germany, despite a decrease in energy prices, is due in part to increasing food prices, causing concern for economists like Jörg Krämer of Commerzbank who believe that inflation persists in Germany, especially when excluding food and energy prices.
In the context of Germany's employment policies and finance, the ECB's key interest rate reductions aim to ease inflationary pressure, but the conflicting inflation data, with a high core inflation rate, implies potential challenges in meeting the ECB's target, which could impact Germany's business and community.
