Inflation in Germany has fallen to its lowest level in almost three years. Thanks primarily to falling energy prices, the inflation rate was 2.2 percent in March.
Inflation in Germany continues to decline. In March, consumer prices only rose by 2.2 percent compared to the same month last year. The Federal Statistical Office announced this in its first estimate. In February the inflation rate was 2.5 percent and in January it was 2.9 percent.
“This is the lowest value since April 2021,” said the statisticians. At that time the inflation rate was 2.0 percent.
Energy prices dampen inflation
The decline was mainly due to further falling energy prices: they were on average 2.7 percent below the previous year's value, after a decline of 2.4 percent in February. Food prices fell for the first time since February 2015, by 0.7 percent, after a further increase of 0.9 percent in February. 3.7 percent more were charged for services than a year before.
The so-called core inflation – which excludes energy and food prices – fell slightly to 3.3 percent.
Signs of further relaxation
Inflation expectations are an important indicator of future price developments. The European Central Bank (ECB) announced that short-term inflation expectations among consumers in the euro zone have fallen to their lowest level in two years.
On average, consumers in February assumed that the inflation rate would be 3.1 percent within twelve months, according to the current ECB survey. This means that expectations are now “at their lowest level since the start of Russia’s unjustified war against Ukraine in February 2022,” the central bank said.
The ECB's first interest rate cut expected in June
Inflation expectations among German companies are also continuing to decline. According to the latest survey by the Munich Ifo Institute, companies' price expectations fell to their lowest level since March 2021. The indicator fell from 15.0 points in February to 14.3 points in March. The points indicate what percentage of companies want to increase their prices on balance.
“Inflation is continuing to decline and is likely to fall below the two percent mark in the summer,” said ifo economics chief Timo Wollmershäuser. “From a German perspective, there is nothing that speaks against the ECB cutting interest rates soon.” The Frankfurt monetary authorities are aiming for an inflation rate of 2.00 percent in the euro zone. The majority of economists are currently expecting a first interest rate cut in June.
Economists disagree about further development
“Inflation in Germany remains on an easing path. This means that a reduction in key interest rates by the European Central Bank from June is becoming increasingly likely,” said Ulrich Kater, chief economist at Dekabank. “However, consumer loans or construction financing will no longer become much cheaper, as a number of future interest rate cuts have already been anticipated under current conditions.”
However, not all economists share this confidence. “Even if the inflation rate for goods is still likely to fall, the continued sharp rise in wage costs suggests that the core inflation rate will stabilize at around three percent over the course of this year and thus well above the ECB target,” commented Commerzbank economist Ralph Solveen. “This will contribute to the fact that the overall inflation rate is expected to have reached its preliminary low in March and is more likely to increase again in the coming months.”
Michael Heise, chief economist at HQ Trust, also assumes that this was the lowest point in price developments this year. “It probably won’t get much better.”
Sebastian Schreiber, ARD financial editorial team, tagesschau, April 2nd, 2024 3:00 p.m
