German inflation slows but energy price pressure remains

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.

A customer pays for goods at a market in Berlin.
A customer pays for goods at a market in Berlin. Photo: picture alliance/dpa | Christoph Soeder

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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Germany to turn thermostat down as gas shortage looms

Germany will limit heating in public buildings over the winter to save on gas as Russia throttles supplies to Europe, Economy Minister Robert Habeck said on Friday.

Germany to turn thermostat down as gas shortage looms

“Public properties – with the exception of hospitals and other parts of the social system, of course – will only be heated to 19C,” Habeck told the daily Süddeutsche Zeitung in an interview.

Public buildings and monuments will also not be lit at night, a measure already taken individually by some cities, as Germany searches for ways to save energy.

READ ALSO: Cold showers to turning off lights: How German cities are saving energy

The recent reduction of gas supplies from Russia, amid tensions over the invasion of Ukraine, has forced the government to act.

Europe’s largest economy, which relies heavily on gas to heat homes and power industry, is trying to wean itself off Russian imports, while avoiding shortages over the winter.

The government has mandated gas storage facilities to be filled almost fully by December and restarted mothballed coal-power plants to take the strain off gas-fired units.

A public information drive has been launched and the government has also subsidised public transport over the summer.

Among the other measures decided in July was a move to ban the heating of private pools with gas.

Habeck, who has said he personally is taking shorter showers to save hot water, said that “more energy savings are needed in the world of work, too.”