Consumers in Germany continue to struggle with persistently high inflation. As in January, consumer prices in February 2023 were 8.7 percent higher than in the same month of the previous year. "The inflation rate remains at a high level," stated the President of the Federal Statistical Office, Ruth Brand, on Friday when the preliminary data was confirmed.
"Especially noticeable for private households in February were the increased prices for food, which increased even more than energy prices." From January to February of the current year, consumer prices rose by a total of 0.8 percent.
Strong price increases for dairy products and bread
According to calculations by the Wiesbaden statisticians, food prices rose by 21.8 percent within a year. As a result, the upward pressure on prices has intensified: in January 2023, food prices were 20.2 percent higher than in the same month of the previous year. According to the Federal Office, dairy products and eggs in particular (plus 35.3 percent) as well as bread and cereal products (plus 24.3 percent) became more expensive in February. The jump in prices for individual products was striking: sugar, for example, cost almost 70 percent more than in the same month last year.
"With an inflation rate of currently 8.7 percent and food that has become 20 percent more expensive in one year, many people have to change their private consumption," classified Christian Wulff from the management consultancy PwC. The trade is also feeling the effects: According to a PwC survey, special offers and the often cheaper own brands are currently particularly popular. In the survey in 25 countries, a good two-thirds (69 percent) of the more than 9,000 respondents said they had cut back on non-essential spending. According to their own statements, 15 percent currently no longer spend any money on products that they do not really need.
"The persistently high inflationary pressure for food and services is likely to be due to a considerable extent to indirect inflationary effects from expensive energy, for example when prices in the catering trade are increased because heating or cooking energy costs have risen or when bakeries increase their prices because natural gas for baking has become more expensive," explained Sebastian Dullien from the Institute for Macroeconomics and Business Cycle Research of the Hans Böckler Foundation. "As energy inflation subsides, the pressure from these indirect effects should ease in the coming months with some lag."
Energy prices are going down
According to the Federal Office, energy products were 19.1 percent more expensive in February than a year earlier. Here the trend is downwards, also because the federal government is spending a lot of money to make natural gas, electricity and district heating more affordable, for example through the price brakes that will apply retroactively to January 1st. Nonetheless, prices for natural gas (up 46.6 percent), electricity (up 23.1 percent) and district heating (up 16.1 percent) were well above the level of February 2022 - the month in which Russia's war against Ukraine began , as a result of which energy became drastically more expensive.
The European Central Bank (ECB) is trying to counteract this with rising interest rates. Since July, the monetary authorities have raised interest rates five times in a row, and the key interest rate in the euro area is now 3.0 percent. At the ECB meeting on Thursday (March 16), a further interest rate hike of another 0.5 points is considered certain. Higher interest rates make borrowing more expensive, which can curb demand and counteract high inflation. In the medium term, the ECB is aiming for price stability in the euro area with an inflation rate of two percent.
For the current year, economists are not expecting a thoroughgoing relaxation in Germany, Europe's largest economy. Inflation has broadened. According to Ifo researcher Joachim Ragnitz, some companies, especially in retail, hospitality, transport and construction, have recently increased prices more than necessary: "These companies have used the situation to increase their profits significantly."
The federal government expects an average inflation rate of 6.0 percent in Germany in 2023. Government energy price brakes are likely to have a dampening effect. According to revised data from the Federal Office, consumer prices in Germany rose by 6.9 percent on average last year. The Bundesbank expects a decline - measured by the harmonized index of consumer prices (HICP), which is decisive for the ECB's monetary policy - to a value of between 6 and 7 percent in the current year. According to the Federal Statistical Office, the HICP in Germany in February was 9.3 percent above the level of the same month last year.