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German inflation slows in June as government steps in

German inflation slowed slightly in June, official figures published Wednesday showed, as government measures to ease the pressure on consumers from rising prices took force.

The €9 ticket is one of the cost of living measures the German government introduced.
The €9 ticket is one of the cost of living measures the German government introduced. Photo: picture alliance/dpa | Oliwia Nowakowska

Inflation sat at 7.6 percent in June, according to the federal statistics office Destatis, still well above the two-percent target set by central banks but down from 7.9 percent in May.

Consumer prices in Germany have been on an almost constant climb for 18 months, with the last fall in the rate registered in January this year.

Inflation was first stoked by the disruptions arising from the coronavirus pandemic, and then by the war in Ukraine.

Russia’s invasion had caused “prices for energy to climb markedly”, leading to high rates of inflation, Destatis said.

Year-on-year energy costs were up 38 percent in June, according to the statistics body, while prices for food also increased by 12.7 percent in the same timeframe.

The disruption caused to supply chains by the war and the pandemic also added to price pressures, it said.

The upwards momentum was only broken by government moves to ease the pressure on consumers, including a discounted fuel tax and a flat-rate €9 monthly ticket for public transport.

READ ALSO: How is Germany’s €9 ticket really affecting public transport

The full impact of these measures could “not be assessed” in the preliminary data, Destatis said.

“This is not yet the end of surging inflation rates,” said Carsten Brzeski, head of macro at the ING bank.

Rather, it was an example that it is “currently governments, not central banks, that can stop inflation”, he said.

Despite the relief for consumers from the government on the costs of transport and energy, “food price inflation continued to pick up” while prices were also marked up for services, Brzeski said.

Looking ahead, the government’s measures are set to expire at the end of August, while “the potential end to Russian gas for Germany is also likely to increase energy prices going into the winter season”, he said.

Spanish inflation reached double digits in June, coming in at 10.2 percent, according to figures published earlier Wednesday.

The data suggested “eurozone inflation is moving up and not down like German inflation”, adding to the pressure on the European Central Bank, Brzeski said.

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ENERGY

EXPLAINED: How much will Germany’s gas levy cost you?

On Monday, gas operators in Germany announced an additional charge of 2.419 cents per kilowatt hour which will come into force in October. Here’s what you need to know.

EXPLAINED: How much will Germany’s gas levy cost you?

What’s going on?

Households in Germany will face significantly higher gas prices this autumn and winter.

The gas transmission system operator, Trading Hub Europe, announced on Monday that German gas suppliers will be allowed to add 2.419 cents per kilowatt hour to the price of gas from October onwards, to help them cope with hugely increased procurement costs. 

The surcharge is aimed at sharing out the soaring costs borne by energy importers after Russia drastically decreased gas supplies to Germany after the invasion of Ukraine.

Gas importers have so far taken on the additional costs themselves, but a new rule agreed by the government allows them to pass on ballooning costs via the levy to households from October 1st.

How much more are you likely to pay for gas?

For an average family house of 160 square metres, which uses 23,000 kilowatt hours per year, this surcharge would amount to around an extra €556.

Those who live in an apartment of 85 square metres, which uses an average of 12,000 kilowatt hours per year, will be likely to pay an extra €290 annually.

Those living in an apartment of 50 square metres are likely to pay an extra €121 to €169 per year.

The levy will primarily affect property owners with gas heating, as well as tenants living in households that have floor heating and their own gas contracts.

What is not yet clear, however, is how households in Germany supplied with Fernwärme (district heating) will be affected by the levy. 

A gas bill in front of a meter, which reads: “your gas bill in detail”. Photo: picture alliance/dpa | Bernd Weißbrod

In many places, this type of energy supply comes from gas-fired power plants and operators of such power plants are supposed to pay the surcharge.

So far operators have no legal means of passing on these costs to their customers, but the German government wants to look into this issue, so this is likely to change. 

Will VAT be charged on the levy?

The German government wants to waive the value-added tax on gas, but it needs permission from the EU to do so. Finance Minister Christian Lindner (FDP) wrote to the Commission on Friday asking for an exception to EU law to be granted so that Germany does not have to charge VAT on the state gas levy.

READ ALSO: Germany pledges inflation relief tax package worth €10 billion

In a letter to Finance Commissioner Paolo Gentiloni, the FDP politician wrote: “VAT on state-imposed levies drives up prices and meets with increasing resistance from the population, especially in the current, exceptional situation.”

It is not yet clear how the Commission is likely to respond to this request.

Haven’t gas prices already increased?

Yes. Numerous gas suppliers have already increased their prices more than once throughout the course of the year.

Most recently, suppliers such as Rheinenergie, Wuppertaler Stadtwerke and Energieversorgung Oberhausen announced significant rate increases. “There is a major wave of price increases,” says energy expert Udo Sieverding from the consumer centre of North Rhine-Westphalia.

In the case of Rheinenergie, for example, an average household, with 15,000 to 20,000 kilowatt hours of annual consumption, is already paying just under €2,000 in additional annual costs after the latest round of price hikes, even before the levy.

Will there be government help for consumers?

Economics Minister Robert Habeck (Greens) announced that the third relief package from the German government will be in place by the start of the levy on October 1st. The traffic light coalition has also agreed on a reform of the housing allowance and is planning a permanent heating allowance for low-income households.

In addition, the new ‘citizen’s allowance’ – a replacement of the current unemployment benefits system – is due to come into effect next year, and promises higher standard rates for the unemployed. 

READ ALSO: Bürgergeld: What to know about Germany’s unemployment benefits shake-up

At the beginning of September, Chancellor Olaf Scholz (SPD) will meet with social partners and other experts as part of a concerted action to discuss relief measures. The main focus will be on supporting lower-income groups that are hit hardest by high energy costs.

The SPD and welfare associations are proposing, for example, monthly direct payments to recipients of basic security and housing allowances and a price cap for a basic quantity of gas is also being discussed.

Economics Minister Robert Habeck explained: “Especially for those who don’t have much, it’s a heavy burden that is impossible or difficult to bear.” 

On Monday, Chancellor Olaf Scholz (SPD) tried to reassure people via Twitter that the government would help balance out the extra costs. 

In the tweet, he said, “we won’t leave anyone alone with the higher costs”. At the same time, Scholz admitted: “It’s getting more expensive – there’s no beating around the bush. Energy prices continue to rise.” So far, he said, government aid of more than €30 billion has already been agreed upon. 

READ ALSO: Germany’s Scholz pledges more relief for lowest earners

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