Inflation in Germany falls again in September to 1.6% #NewsGerman

Inflation in Germany fell in September to an annual rate of 1.6%, the second month in a row that inflation has been below the 2% threshold, according to preliminary figures released by Germany’s Federal Statistical Office on Monday.

In August, annual inflation in Europe’s largest economy was 1.9% compared to the same month in the previous year, the agency previously reported.

That puts inflation in Germany at its lowest level in more than three years. Inflation peaked in late 2022 at an annual rate of almost 9%.

Economists predict that inflation in Germany will continue to fall.

In their recently published autumn report, a group of leading German economic research institutes forecast consumer prices to rise by 2.2% in the current year, down significantly from 5.9% in 2023. They predicted inflation will be 2.0% in 2025.

Lower inflation in Germany will likely give the European Central Bank (ECB) more leeway to adjust key interest rates as monetary policy leaders seek to balance fighting inflation with economic growth.

Energy leads decline

Lower energy prices in particular brought down inflation, with costs 7.6% lower compared to the previous month.

Crude oil prices dropped over the summer, and prices for diesel and petrol at German filling stations have since fallen to the lowest level since late 2021. Heating oil prices also declined.

Prices for food, meanwhile, rose 1.6% compared to the same month last year, while the cost of services also rose slightly, driven up by improving wages for workers.

The upward trend in prices had already slowed considerably in recent months. The inflation rate in July was 2.3%.

The closely watched core inflation rate, which excludes the highly volatile prices for energy and food, fell slightly from 2.8% to 2.7%.

The higher core rate indicates that the inflation problem in Germany has not yet been completely solved, said economist Sebastian Becker of Deutsche Bank Research.

He said that core inflation will only fall slowly because wage pressure from gains made by workers is set to keep pushing upward on the cost of services, a key component in core inflation.

Ulrich Kater, chief economist at DekaBank, predicted that wage increases and rising service costs would push inflation back above the 2% mark in the coming months.

Christoph Swonke, economic analyst at DZ Bank, said that the price-dampening effect of lower energy prices will also lose its force in the months ahead.

Consumers still reluctant to spend

Lower inflation has not yet boosted confidence among German consumers, however, even as wages continue to rise and regain ground after losing value during the high point of inflation.

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