Reduced inflation rate, heightened food prices persist
Germany's Inflation Rate Remains Steady Amidst Lower Energy Prices and Rising Food Costs
In May, Germany's inflation rate remained constant at 2.1 percent, slightly above the European Central Bank's (ECB) target of 2 percent. The ongoing trade tensions initiated by US President Donald Trump have contributed to a decline in worldwide crude oil prices, which has led to a 4.6 percent decrease in energy costs compared to the previous year.
According to the Federal Statistical Office, consumer prices, on average, have risen by 2.1 percent compared to the same month last year. From April to May, the prices increased by a minor 0.1 percent.
However, the cost of food continued to climb, with a 2.8 percent increase compared to the previous year. In North Rhine-Westphalia, non-alcoholic beverages became 8.9 percent more expensive, and fruit increased by 8.6 percent. The price of services rose by 3.4 percent, while goods became 0.9 percent more expensive. The core inflation, which excludes food and energy prices, decreased to 2.8 percent.
The central bank has reduced its key interest rate seven times consecutively due to the easing of price pressure. Jörg Krämer, the chief economist of Commerzbank, believes that inflation persists, despite the moderation in the rate of service price increases. He points out that the inflation rate, excluding volatile energy and food prices, remained 2.8 percent above the ECB's target.
The decline in renewable energy output in Germany might lead to increased reliance on fossil fuels, potentially offsetting some of the benefits from lower energy prices. On the other hand, global supply chain disruptions, weather-related crop failures, and changes in consumer behavior can drive up food prices, contributing to higher overall inflation rates.
The balance between these two factors will determine the net effect on Germany's inflation rate. Cheaper energy prices can help mitigate inflationary pressures, but rising food costs could offset these benefits and keep inflation higher.
Economic policies, such as Germany's community policy and employment policy, might need to address the rising food costs to maintain a stable inflation rate. Financial projections should consider potential offsetting effects from changes in energy prices and food costs, ensuring a balanced approach to inflation management.
