German inflation slows but energy price pressure remains

AFP/The Local
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German inflation slows but energy price pressure remains
A customer pays for goods at a market in Berlin. Photo: picture alliance/dpa | Christoph Soeder

Inflation in Germany slowed slightly in July, but was kept high by energy prices which have soared since the Russian invasion of Ukraine, official data showed on Thursday.


Consumer prices rose by 7.5 percent year-on-year in July, fractionally lower than the 7.6-percent pace recorded in June.

Energy prices had a "considerable impact on the high inflation rate", the federal statistics agency Destatis said in a statement.

The cost of energy was 35.7 percent higher in July this year than in 2021, the statistics body said, with prices taking off since the outbreak of the conflict in Ukraine.

The rising cost of food and supply chain disruptions also added to the price pressures.

Inflation hit a post-reunification high of 7.9 percent in May, but has slowed over the last two months.

Experts believe this is down to the government stepping in to ease pressure on consumers. Among the energy relief measures is a fuel tax cut and the €9 monthly ticket. 


What happens to inflation in the coming months?

The inflation rate was "likely to increase again after the summer" as the relief measures fall away at the end of August, said Fritzi Köhler-Geib, chief economist at the public lender KfW.

Likewise, "from October onwards the strongly increased gas prices can be passed on directly to the end-customers" as Berlin intervenes to save struggling energy companies, Köhler-Geib said.

READ ALSO: Why households in German will soon face gas bill price hikes

It would take "until 2023" for inflation to come off the boil and start coming down towards the two-percent rate targeted by the European Central Bank, said Carsten Brzeski, head of macro at the ING bank.

However, the Munich-based ifo Institute, said inflation had likely reached its peak in Germany and will gradually decline in the course of the second half of the year.

Russia this week again reduced the flow of gas to Germany via the Nord Stream pipeline to 20 percent of its normal capacity.

A total end to supplies would likely send prices up further and heap more pressure on consumers.

The "risk of a complete gas supply freeze" in retaliation for the West's support of Ukraine hung "like the sword of Damocles" over the economy in the coming months, Köhler-Geib said.



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