Energy prices drive German inflation to 2.9 percent in August

High energy prices are once again driving inflation in Germany to just under the three percent mark. As in April, the inflation rate reached 2.9 percent in August, as the Federal Statistical Office calculated based on preliminary figures. Consumer prices in Europe's largest economy last rose more sharply in December 2023, when they rose by 3.7 percent.

“The slightly higher inflation of 2.9 percent in August is, as in previous months, due to higher prices for fuel and heating oil,” said Silke Tober, inflation expert at the Institute for Macroeconomics and Business Cycle Research (IMK) of the employee-oriented Hans Böckler Foundation.

According to the Bundesbank, life in Germany could temporarily become more expensive in the next few months. The Iran conflict continues to smolder, with the result that the Strait of Hormuz, which is important for international energy trade, remains effectively blocked.

Heat and drought are likely to reduce this year's harvests

Drivers in Germany feel this at the gas pump. According to the ADAC, 2026 could be the most expensive refueling year ever. And the longer energy prices remain high, the greater the risk that other prices will also rise because, for example, transport and refrigeration of food becomes more expensive. Added to this are the consequences of heat and drought, which reduce the harvest.

The higher the inflation rate, the lower people's purchasing power: they can then afford less for one euro and hold back on making larger purchases. Private consumption, which is an important pillar of the economy in good times, has been weakening for months.

Millions of collective bargaining employees can at least hope that, after deducting inflation, they will have a little more money in their wallets this year. The bottom line could be a real wage increase of 0.7 percent, as the WSI tariff archive of the Hans Böckler Foundation has calculated. However, it will only become clear at the end of the year whether the calculation will work out, because the inflation rate could still rise and in some large sectors there are currently no collective agreements that the WSI could take into account.

Is the ECB raising key interest rates?

Because inflation in the euro area recently rose - to 2.9 percent in July - economists expect that the European Central Bank (ECB) will raise key interest rates in the euro area for the second time this year at its next meeting on September 10th. The central bank can curb inflation with higher interest rates because loans then become more expensive and demand is slowed down. The ECB is aiming for an inflation rate of 2.0 percent for the euro area in the medium term. With this brand she sees her primary goal fulfilled: to ensure stable prices and a stable euro.

The deposit interest rate in the euro area, which is important for banks and savers, is currently 2.25 percent. In a recent interview, ECB Executive Board member Isabel Schnabel spoke out in favor of higher key interest rates to curb inflation risks. With the current key interest rate, it is unlikely that inflation will return to the targeted target of 2.0 percent in the medium term, said Schnabel: "Further tightening will therefore be necessary."