The high inflation in Germany has noticeably subsided with the fuel discount that has been in effect since the beginning of the month. Goods and services rose in price by 2.8 percent in October compared to the same month last year, as the Federal Statistical Office announced in its first estimate. Experts had expected a rate of 3.0 percent.
In September, inflation rose above three percent for the first time in almost three years. It was 3.3 percent. The main reason for this was the record high fuel prices. Since the energy tax on petrol and diesel was reduced at the beginning of the month, prices at the pumps have now fallen slightly.
Energy is significantly more expensive than a year before
But it is too early to give the all-clear, warns Commerzbank chief economist Jörg Krämer. The massive increase in energy prices is likely to gradually make other goods and services more expensive. "Inflation will probably be above three percent again at the turn of the year."
Energy prices have risen sharply compared to the same month last year. They increased by 12.2 percent. However, this meant that price inflation slowed down - after almost 15 percent in the previous month.
Food prices, however, only rose slightly by 0.4 percent in October. Services, which include package tours and restaurant visits, rose in price by 2.5 percent, again less than in previous months.
Inflation is likely to pick up in the new year
The fuel discount in Germany should apply until the end of the year. The federal government reintroduced it in response to the sharp rise in fuel prices as a result of the conflict in the Middle East. According to the Bundesbank, the inflation rate is likely to increase noticeably at the beginning of next year - when the fuel discount expires.
In addition, as a result of the energy price shock, other prices could gradually rise because transport and storage become more expensive or raw materials become more expensive. The higher the inflation rate, the lower people's purchasing power: they can then afford less for one euro.
Fuel price cap as a solution?
From the Bundesbank economists' point of view, a fuel price cap would have a dampening effect, depending on the specific design. Federal Economics Minister Katherina Reiche (CDU) is supposed to work out the price cap according to a decision by the coalition committee.
This should be introduced at the beginning of 2027 at the latest. However, Reiche has emphasized several times that this should not jeopardize security of supply. It must also be prevented that gasoline is exported from Germany and that fuel becomes scarcer in this country.
The ECB's target is 2.0 percent inflation
The European Central Bank (ECB) is aiming for 2.0 percent inflation in the euro area in the medium term. With this mark, the central bank sees its most important goal fulfilled: ensuring a stable euro and maintaining people's purchasing power.
In order to slow down price increases, the ECB has already raised key interest rates twice this year. At its last meeting it kept the interest rate unchanged. Higher key interest rates make loans more expensive, which can slow down demand and thus dampen inflation.
However, according to the ECB's latest assessment, people in the euro area will have to prepare for increased inflation until at least 2027. And for Germany, leading economic research institutes also expect inflation to rise from 2.8 percent this year to 3.2 percent in 2027.
