Although producer prices continue to fall, the pace is slowing. Above all, the cheaper energy has a positive effect. However, an increase can be observed in a month-on-month comparison.
In Germany, the decline in prices at producer level continues to weaken. In March, producer prices fell by 2.9 percent year-on-year, the Federal Statistical Office said. In February the decline was 4.1 percent and in January it was even 4.4 percent. Analysts had on average expected a sharper decline in producer prices of 3.3 percent for March.
On a monthly comparison, however, producer prices rose by 0.2 percent. In this view, economists had expected a decline of 0.1 percent.
Energy prices are falling over the year
The most important reason for the decline in producer prices remains falling energy prices. Energy was 7.0 percent cheaper in March than in March 2023, while it remained unchanged compared to the previous month. Natural gas fell in price the most over the year, with a price decline of 15.4 percent. Electricity cost 12.6 percent less than a year earlier.
Excluding energy, producer prices were 0.8 percent lower than in March 2023 and rose 0.3 percent compared to February 2024, the statement said.
Confectionery is becoming significantly more expensive
Food costs 0.3 percent less in March 2024 than in March 2023. Compared to the previous month, prices rose by 0.9 percent. In March 2024, untreated vegetable oils in particular were cheaper than in the same month last year at minus 13.3 percent. Milk prices fell by eleven percent, and coffee cost 7.3 percent less than in March 2023.
Confectionery, on the other hand, was 16.5 percent more expensive than in March 2023. One reason for this could be, among other things, the drastically increased cocoa prices in recent months. Butter cost 13.2 percent more than the previous year. Compared to February 2024, butter prices rose by 2.5 percent, as calculated by the Federal Statistical Office.
Producer prices as a signal of coming inflation
Producer prices capture price pressure at the manufacturer level by reflecting the producers’ sales prices. They are also considered a kind of indicator of upcoming inflation. The development also affects consumer prices, on which the European Central Bank (ECB) bases its monetary policy.
It is currently by no means certain that the inflation rate will continue to decline: consumers in Germany will have to prepare for highly fluctuating inflation in the next few months, according to the Bundesbank’s current monthly report.
The inflation rate will probably initially decline again in April. According to the Bundesbank, this is also due to the earlier Easter date compared to the previous year. Therefore, the usual sharp price increase for travel services is unlikely to occur in April this year.
Oil prices could fuel inflation again
“In May, however, the rate could jump back to around three percent, because a year earlier the introduction of the Deutschlandticket had dampened the price level,” said the economists. According to the Bundesbank, the recent rise in oil prices – also due to the crisis in the Middle East – could increase inflation. Added to this is the strong wage growth.
In March, inflation in Germany was 2.3 percent. The inflation rate in the euro area was only 2.4 percent in March. In autumn 2022 it was still over ten percent at times. According to Bundesbank President Joachim Nagel, the ECB is heading for a first interest rate cut in June: “From today’s perspective, the first key interest rate cut in June could be appropriate in the euro area.”