December figures: inflation rate falls to 8.6 percent

Inflation slipped back well below the ten percent mark in December. Looking ahead to 2022, however, the inflation rate was at its highest level since reunification.

The rise in inflation in Germany slowed down from a high level in December. Consumer prices increased by 8.6 percent compared to the same month last year, as the Federal Statistical Office announced in an initial estimate.

Previously, inflation in Germany had been in double digits for three months in a row. In November, the inflation rate fell for the first time since July and stood at 10.0 percent. In October it was 10.4 percent.

On average, consumer prices increased by 7.9 percent in 2022, according to the Federal Statistical Office. This is the highest level since reunification in 1990. The highest rate of inflation for a full year to date was 7.6 percent in what was then the Federal Republic of Germany in 1951.

The days of double-digit inflation seem to be over

How strong will the currency devaluation continue? Even if many economists are predicting a higher inflation rate for January, even taking into account the electricity and gas price brakes that will then take effect, the time of double-digit rates seems to be over.

In any case, most experts assume that inflation peaked last year. “We have probably survived the worst of inflation,” commented the chief economist at Berenberg Bank, Holger Schmieding.

This is primarily due to developments on the energy markets, which have been recovering from the spring price shocks since last summer. The less expansive monetary policy of the central banks should also gradually take effect with the usual delay of several months.

Inflation at seven percent in 2023?

Nevertheless, inflationary pressure will remain high in 2023. “Inflation only fell sharply because the state took over the gas payments for many citizens in December. Excluding energy and food, on the other hand, inflation rose further from 5.0 percent to an estimated 5.1 percent,” says Commerzbank- Chief economist Jörg Kramer.

“Due to the ECB’s hesitant action, citizens will continue to suffer from high inflation for a long time to come, even if the gas and electricity price brakes should depress inflation this year.”

In any case, the two percent target set by monetary policy will remain a long way off for the foreseeable future. While the European Central Bank (ECB) is assuming over six percent for the euro zone, the Bundesbank and the economists are expecting values ​​of around seven percent.

The main reason remains the still expensive energy, the price development of which only reaches consumers with a delay. Every cubic meter of gas and every barrel of oil that no longer comes from Russia will have to be purchased from more expensive sources in the future.

In addition, 2023 will be the year of second-round effects. The increase in core inflation shows that more companies outside the energy sector are passing on their high electricity, heating and fuel costs to consumers, explained Schmieding. In addition, many companies are likely to pass on some of the inflation-related wage increases through further price increases.