Consumer prices: Fuel discount dampens inflation - but still no all-clear

Wiesbaden. The fuel discount provided significant relief for consumer prices in Germany in October. The inflation rate fell to 2.8 percent after 3.3 percent in September, as the Federal Statistical Office calculated based on preliminary data.

“The fact that inflation is falling below the 3 percent mark is primarily due to the fuel discount,” said Commerzbank chief economist Jörg Krämer. But it is too early to give the all-clear. The massive increase in energy prices is likely to gradually make other goods and services more expensive. “Inflation will probably be above 3 percent again at the turn of the year.”

In October, consumers in Germany had to pay 12.2 percent more for fuel and household energy than a year before, as the statisticians announced. However, this meant that price inflation slowed down after almost 15 percent in the previous month.

Food was also 0.4 percent more expensive in October than a year earlier. Services, which include package tours and restaurant visits, rose in price by 2.5 percent, again less than in previous months.

Economists expect inflation to remain elevated for the time being: the conflict between the USA and Iran, which has been driving up energy prices since the end of February, has still not been resolved. “The increase in energy prices is likely to remain at a very high level despite the temporary reintroduction of the fuel discount for the months October to December,” says the Bundesbank’s latest monthly report.

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.

In order to at least provide some relief at the gas station, the federal government launched a gas discount for the second time this year, despite criticism from many experts. From October 1st to the end of 2026, the energy tax on gasoline and diesel will be reduced by around 14 cents per liter. According to the coalition between the Union and the SPD, with VAT there is a relief of up to 17 cents per liter.

Energy has been the main driver of inflation for months - and not just in Germany. In September, the inflation rate in Europe's largest economy climbed to its highest level since December 2023. In the euro area, too, the highest level in three years was reached in September at 3.8 percent.

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. 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. Leading economic research institutes also expect inflation in Germany to rise from 2.8 percent this year to 3.2 percent in 2027.