Now it’s official: Inflation in Germany for the whole of 2023 was exactly 5.9 percent. On Tuesday, the Federal Statistical Office confirmed its first estimate at the beginning of the month. This means that the annual inflation was significantly lower than in 2022. At that time the value was 6.9 percent.
On the one hand, this news is reassuring for people: prices have risen less quickly recently. On the other hand, the inflation rate in December 2023 was still at a painful level of 3.7 percent, especially since the high prices that have built up over the past three years are very unlikely to fall to the previous level of 2021. Germans notice every day at the checkout that meat and sausage are currently around 25 percent more expensive and diesel fuel is almost 60 percent more expensive than three years ago.
For 2024, many experts expect inflation to return to normal, i.e. to slip below three percent, but with fluctuations: Inflation in this country will probably increase again in January, because there were some changes to the law at the turn of the year that increase prices: VAT for restaurants was raised back to the old level, i.e. from seven to 19 percent, which could make eating out more expensive. In the meantime, the rate had been reduced due to the corona pandemic. Likewise, as decided by the traffic light coalition, the CO₂ price is rising more than originally planned, which makes heating and refueling more expensive, and the energy price brakes have expired.
A look at the rest of the European Monetary Union shows how different the levels of inflation are in individual countries. In Estonia it was four percent in December, in Italy only 0.6 percent, in the Netherlands 1.2 percent and in Spain 3.1 percent. The euro zone as a whole reported 2.9 percent. This is still well above the target of the European Central Bank (ECB), which wants to achieve inflation of two percent in the medium term. For comparison: Inflation in the USA was 3.4 percent in December and 3.9 percent in Great Britain
The ECB never tires of emphasizing that exactly 2.0 percent is the target and that key interest rates will therefore remain at a high level until this mark is reached sustainably. In the financial markets, people are already racking their brains as to when this point might have come: key interest rates are the price basis for almost all assets, be it stocks, bonds or real estate. A dream for speculators. “We will only be satisfied when inflation falls sustainably to two percent,” ECB Director Isabel Schnabel told the SZ a few weeks ago. And: “We still have some way to go and have to see how difficult the famous last mile will be.”
A crucial question is: what happens next with wages? If they rise too much, i.e. more than the productivity increases would justify, there may be a risk of a wage-price spiral. “By our June meeting we will have this important data,” ECB chief economist Philip Lane said in the Italian newspaper Corriere della Sera. So the first key interest rate cut will be in June at the earliest?
Bundesbank President Joachim Nagel thinks along these lines: It is still “too early to talk about interest rate cuts. Inflation is still high,” Nagel said on Monday Bloomberg TV on the sidelines of the World Economic Forum in Davos. “Maybe we can wait until the summer break or whatever, but I don’t want to speculate.”
The key interest rate is currently 4.5 percent. Many economists expect that the central bank will cut the key interest rate four times in 2024, by 0.25 percentage points each, according to the results of a survey by the news agency Bloomberg.