Persistent Consumer Price Growth Maintained at 2.1% Rate
Consumer Prices Hold steady in Germany at 2.1% for May
Wiesbaden – In a report released by the Federal Statistical Office, Germany's inflation rate remains unchanged at 2.1% for May. This is consistent with the April figure as well, according to preliminary data on inflation.
Notably, food prices have seen a disproportionate increase, while energy costs have decreased compared to last year. In May, energy prices fell by 4.6%, following a 5.4% drop in April. The federal government's announcement to lower the electricity tax offers additional relief for consumers.
The declining energy prices can be attributed to ongoing concerns about the global economy in relation to the trade dispute with the USA. Fuel prices in Germany reached their lowest point of the year so far at the beginning of May, but have since slightly increased from mid-May, according to ADAC price comparisons.
Meanwhile, food prices also climbed by 2.8% in May, similar to the increase in April. High inflation persists in services such as restaurant visits, travel packages, and car repairs, with prices up 3.4% compared to last year. Services with high labor cost shares tend to pass these costs quickly to customers.
Commerzbank's chief economist, Jörg Krämer, highlights the problem of enduring high core inflation. He states, "Without the volatile prices for energy and food, the inflation rate is still 2.8%, well above the ECB's target of 2%. Inflation remains persistent."
In terms of overall consumer price growth, figures from the Federal Office show a 0.1% increase from April to May this year.
In the eurozone, inflation has been stable at 2.2% as per Eurostat data for April, slightly above the European Central Bank's (ECB) medium-term target of 2%. Higher inflation rates diminish the purchasing power of consumers, while central bankers aim to avoid persistently falling prices to maintain economic stability.
Given the current inflation developments, economists predict the ECB to announce another interest rate cut next Thursday (5th of June). This would be the eighth since summer 2024, with the deposit rate potentially reducing from 2.25% to 2.0%. Lower key interest rates usually make loans cheaper, boosting the economy, but may negatively affect savers with plans for worsening interest rates on savings accounts and fixed-term deposits.
The potential influence of the ongoing trade dispute between the USA and Germany on consumer prices in coming months remains unclear. While the trade conflict could pose economic challenges, the direct impact on consumer prices in Germany is expected to be moderate, heavily influenced by broader economic conditions.
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Consumer finance might be affected by the ongoing concerns about the global economy, as the declining energy prices could be associated with the trade dispute with the USA.
The high inflation persisting in services such as restaurant visits, travel packages, and car repairs could impact household budgets, affecting overall consumer finance.
