The increase in consumer prices in Germany has only slowed down somewhat. Inflation fell slightly to 7.2 percent. Food prices rose again massively.
Across Germany, consumer prices rose by an average of 7.2 percent in April compared to the same month last year. This was reported by the Federal Statistical Office. This is the lowest level since August 2022. In March, the inflation rate fell significantly to 7.4 percent, after having been 8.7 percent in January and February.
“The only very slow decline in inflation in April can be seen as a clear indication that the stabilization of the price level will be a lengthy process that is likely to strain consumers’ patience,” said Michael Heise, chief economist at HQ Trust.
Food much more expensive, energy cheaper
In April, food prices again rose at an above-average rate of 17.2 percent compared to the same month last year. In contrast, the rise in energy prices, up 6.8 percent year-on-year, was again well below the overall inflation rate, as was the case in March.
However, the significant slowdown in the rise in energy prices is largely due to a so-called base effect: in the course of the Russian invasion of Ukraine, energy prices had risen sharply in the same period of the previous year. “In addition, the measures included in the federal government’s third relief package are also contributing to the current slowdown in energy price trends,” emphasize the statisticians.
German import prices have fallen for the first time since January 2021
In the morning, positive signals came from import prices, which have fallen for the first time in over two years. Imports fell by an average of 3.8 percent in March compared to the same month last year – the first decline within a year since January 2021.
Since the German economy obtains many preliminary products and raw materials from abroad, the falling import prices also reach consumers with a delay and are included in general inflation. Energy in particular became significantly cheaper in a year-on-year comparison, with a drop of 27.2 percent.
food stay inflation drivers
On the other hand, 14.0 percent more had to be paid for food. The prices for meat and meat products (up 13.9 percent), fruit and vegetable products (up 17.7 percent) and milk and milk products (up 9.6 percent) rose particularly sharply. “In particular, pork was significantly more expensive than a year ago,” according to the statistics office. Here the increase was 35.0 percent.
According to experts, food will likely continue to be the main driver of the inflation rate in the coming months. According to the current company survey by the Munich ifo Institute, price expectations have recently risen again in some areas of the retail trade – most notably in the case of food and beverages.
Significantly lower inflation rates from May?
However, the overall inflation rate is likely to fall more sharply in the coming months, at least that is the assumption of many experts. The scientific director of the Institute for Macroeconomics and Business Cycle Research (IMK), Sebastian Dullien, firmly expects that “inflationary pressure will decrease significantly and quickly”.
NordLB chief economist Christian Lips sees it similarly: “From May onwards, inflation should then drop more quickly. We could move towards three percent by the end of the year.”
ECB facing difficult decision
The gentle easing in German consumer prices is also taking some of the pressure off the European Central Bank (ECB) to continue raising interest rates on a large scale in order to get inflation in the euro zone under control.
However, the other major euro countries have recently sent the opposite signals: inflation in France surprisingly increased again in April, and the situation was similar in Spain.
Experts expect small rate hike
In the coming week, the currency watchdogs around ECB boss Christine Lagarde will decide on their further monetary policy course. Most economists are expecting a small rate hike of 0.25 percentage points – even though two members of the Governing Council, Robert Holzmann and Isabel Schnabel, had recently spoken out in favor of a larger rate hike.
A moderate tightening is also expected on the market, as shown by the futures market interest rates. However, Robert Greil, chief strategist at the private bank Merck Finck, is convinced: In view of the persistent inflationary trend in the euro area, this will not be the last rate hike by the ECB. Alexander Krüger, chief economist at Hauck Aufhäuser Lampe, also emphasizes: It will probably take until autumn before the ECB price target slowly comes into view.