German inflation up to one percent in February

German inflation ticked up slightly to 1.0 percent in February, preliminary data released on Friday by the national statistics office showed, but was expected to fall again soon.

German inflation up to one percent in February
Photo: DPA

The small rise from 0.9 percent in January on a 12-month basis ran counter to forecasts from analysts polled by Dow Jones Newswires who had expected inflation in the biggest European economy to dip to 0.8 percent.

German inflation had fallen to a 12-month rate of 0.9 percent, its lowest level since February 2004, but UniCredit economist Alexander Koch said Friday that, “the uptick in the headline rate in February is definitely not the end of the downward trend.”

Analysts agree that the sinking oil prices continue to hold the German inflation rate down. “The marked drop in energy prices has again been the main contributor to inflation retreating, and in particular the price of heating oil,” said Commerzbank analyst Simon Juncker.

According to the latest statistics, the fuel prices in six of Germany’s states have dropped by between 12.1 percent and 13.9 percent since February 2008, while the price for heating oil has dropped by as much as 18.4 to 29.4 percent in the same period. But in the past month, there have been contrasting tendencies. While fuel prices have risen by between 0.9 and 1.9 percent, heating oil prices have dropped again by between 5.7 and 11.7 percent.

Across the entire 16-nation eurozone, inflation dropped in January by the sharpest rate on record, slumping to 1.1 percent in the face of a severe economic downturn, according to official EU figures released on Friday.

The fall brought 12-month eurozone inflation to the lowest point since July 1999 and was down sharply from the 1.6 percent that the European Union’s Eurostat data agency recorded in December.

Inflation was expected to fall until July, “when the impact of last summer’s oil price bubble disappears from the year-by-year comparison,” Juncker pointed out.

Capital Economics economist Jennifer McKeown noted that, “as activity in Germany and the eurozone as a whole continues to deteriorate, the European Central Bank should become increasingly worried about the prospect of deflation.”

With inflation now well below the ECB’s target of just under 2.0 percent, “we see the ECB cutting interest rates to zero or very close later this year,” McKeown said.

The ECB has slashed its main interest rate from 4.25 percent to 2.0 percent in four steps since October, and financial markets expect it to reach an all-time low of 1.5 percent when bank governors meet here next week.

Juncker said that with inflation expected to fall briefly into negative territory, there was “scope for more rate cuts in the months ahead.”


German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.