Germany’s inflation rate falls to 2.3% in January #NewsGerman

Inflation in Germany was 2.3% year-on-year in January, down from 2.6% in December, the Federal Statistical Office said in its first estimate released on Friday.

In January, fuel and heating were cheaper than a year ago. Energy costs decreased by 1.6%, thereby dampening the inflation rate. Additionally, the increase in food prices slowed to 0.8% in January, following a 2% rise in December.

“For consumers, the year begins with positive news,” said Michael Heise, chief economist at the asset manager HQ Trust. “Price reductions in food and package holidays compared to December 2024 have contributed significantly to this.”

Many economists had expected price pressure to remain elevated at the start of the new year, but not such a clear decrease as reported on Friday. This is because the increase in the price per ton of carbon dioxide (CO2) from €45 to €55 ($46.72-$$57.10) from January 1 makes petrol, heating oil and gas generally more expensive.

Additionally, the price for the so-called Deutschlandticket, a monthly subscription card which allows nationwide travel on buses and regional trains, has increased.

Although German businesses in general currently plan to raise prices less frequently, a new survey from the ifo Institute think tank shows that businesses in consumer-related services such as hotels, travel agencies and retail plan to increase prices more often.

“Therefore, the inflation rate is likely to remain around 2.5% in the coming months, and thus above the European Central Bank’s target,” says Timo Wollmershäuser, the head of economic research at ifo.

For the eurozone overall, 2% inflation is considered price stability. This is because if prices fall continually, companies and consumers may delay investments in anticipation of further reductions.

Conversely, if prices rise too rapidly, it is detrimental to the economy: Consumers lose purchasing power, as they can buy less with the same amount of money and prefer to save it.

Economists expect Germany’s average inflation rate for the year to be slightly above 2%, similar to 2024, when the inflation rate in Europe’s largest economy averaged 2.2%.

For months, services such as insurance, flight tickets and restaurant visits have been growing more expensive than average in Germany. In January, prices in this sector rose by 4%, following a 4.1% increase in December.

Excluding the volatile prices for energy and food, statisticians calculated an inflation rate of 2.9% for January 2025. This core inflation reflects the underlying price increases and, according to many economists, better represents the inflation trend than the overall rate.