Inflation in Germany: Price pressure is surprisingly after!

Inflation in Germany: Price pressure is surprisingly after!

Deutschland - In June 2023, inflation in Germany surprisingly decreases, which gives the German economy new hope. Consumer prices rose by an average of 2.0 percent compared to the same month last year, which represents a decline compared to the increasing prices of 2.1 percent in April and May. This development enables the German economy to take a breathing space because the price pressure has noticeably reduced.

The decline in energy prices, which decreased by 3.5 percent compared to the previous year, is particularly remarkable, and the decline was 4.6 percent in May. In contrast, food prices rose by 2.0 percent and the services increased by 3.3 percent. The core inflation, which takes into account the price increases without food and energy, fell to 2.7 percent, which is also a slight decline.

inflation development and forecasts

The chief economist of the Hamburg Commercial Bank, Cyrus de la Rubia, was optimistic about the return of more stable inflation conditions. He pointed out that high inflation could initially be over, with increasing food prices and services continue to be a challenge. The decline in price pressure is due to various factors, including a stronger euro, a higher range of goods from Asia and weaker demand for consumption.

The European Central Bank (ECB) has reduced its key interest rates seven times in a row due to the declining price pressure in the past few months. The current inflation goal of the ECB for the euro area is 2 percent, and the German inflation rate is now exactly due to this goal. In order to combat price pressure in the long term, however, the fight against structural factors such as demography and climate change remains of central importance.

connection to European monetary policy

The ECB made significant progress in the fight against inflation in the entire euro area in 2023. At the beginning of the year, the overall inflation was close to its historical maximum, but this could change with falling energy prices and a restrictive monetary policy of the central bank. From January to September 2023, the key interest rates were increased by a total of 200 basis.

According to the current reports, the inflation rate in the OECD countries in December 2023 dropped to 3.9 percent, which is also due to the generally declining tendencies for prices for energy resources. Together with the ECB's efforts, these developments met the inflation to reduce the desired goal of 2 percent. The progress is promising, but also have challenges and uncertainties.

The ECB also reduced its balance sheet by more than 1 trillion euros in 2023 and set the reinforcement of funds from the Pandemie emergency program. Experts expect the ECB balance to be 6.9 trillion euros at the end of 2023. During these developments, Croatia joined the euro area in January 2023 and expanded the euro zone to 20 countries.

Overall, it can be seen that the German economy, despite continuing challenges in the fight against inflation, is part of the ECB, while the ECB continues to play a central role in the design of monetary policy.