Inflation Rates Remain Steady in Germany, with Food Prices Rising Disproportionately
Persistent Inflation Stays at 2.1% Rate
Wiesbaden - Germany's inflation rate held steady at 2.1% in May, according to preliminary data from the Federal Statistical Office, echoing the figure from April. Notably, food prices have experienced a disproportionate increase, although consumers have enjoyed reduced energy costs compared to the previous year.
Energy prices recorded a decline of 4.6% in May compared to the same period last year, continuing a downward trend from the 5.4% drop in April. The decrease is partly due to the government's announcement to lower the electricity tax, offering additional relief. On the contrary, fuel prices briefly dropped to their cheapest levels this year in early May but started to rise again mid-month.
Meanwhile, food prices also surged disproportionately in May, increasing by 2.8%, compared to the 3.0% hike in March. The persistent high inflation in services, which includes dining, travel, and auto repairs, continues at 3.4%, as in April. Services with a high labor cost share are particularly prone to passing on higher labor costs to customers.
Commerzbank's chief economist Jörg Krämer emphasizes the problem of still high core inflation, stating that without the volatile energy and food prices, the inflation rate would still exceed the European Central Bank's (ECB) target of 2% by 2.8%. Inflation remains persistent, Krämer notes.
Overall consumer prices were up by 0.1% from April to May this year. In the eurozone, inflation has remained stable at 2.2% according to Eurostat data for April, only slightly above the ECB's medium-term target of 2%.
Economists predict the ECB to decide on a further interest rate cut next Thursday (5 June), potentially lowering the deposit rate for savers and banks from 2.25% to 2%. Lower interest rates are likely to make loans cheaper, potentially boosting the economy, but may negatively impact savers with reduced interest rates on deposit offers.
The outlook for inflation in Germany remains uncertain due to the ongoing trade dispute with the US. The Bundesbank anticipates the inflation rate to fluctuate around the 2% mark in the coming months, and various forecasts suggest an average rate of around 2% for the entire year 2025. In 2024, the inflation rate in Germany averaged 2.2%.
Enrichment Data analysis reveals several factors contribute to the disproportionate increase in food prices compared to energy prices. These factors include wholesale price increases, specific product price hikes, seasonal and regional variations, and inflationary pressures. In contrast, energy prices are more influenced by geopolitical and demand factors, explaining their downward trend.
To finance the disproportionate increase in food prices, businesses might need to adjust their budgets accordingly. There is a possibility that some businesses may consider seeking external funding, such as loans or investments, to cope with the rising costs.
