2023-11-08 11:28:00
This is a relief for German households. The inflation rate across the Rhine stood at 3.8% over one year in October, the statistics institute Destatis announced this Wednesday, November 8, confirming initial estimates published at the end of October. This is therefore a slowdown after the 4.5% in September and the 6.4% in August. German inflation is even back at its lowest level since August 2021, while the economy continues to slip.
Serving as a reference for European comparisons, the harmonized price index increased by 3.0% over one year, approaching the European Central Bank’s objective of 2%.
Oil prices falling again
This drop is mainly due to a sharp easing of energy prices and the end of an effect linked to a reduction in transport prices implemented last year. The increase in inflation in previous months was mainly due to the rise in the price of a barrel of Brent oil, which rose above 95 dollars (89 euros) in August after having fallen below 75 dollars. in May. With a barrel returning below $90 last month and energy prices falling 3.2% year-on-year in October, it is therefore logical that prices stabilize. The picture, however, remains mixed: if the price of gas fell by 13% over one year, that of electricity increased by another 4.7%.
Food inflation is also slowing, but remains at the high level of 6.1%, compared to 7.5% in September. Here too there are notable differences in the shopping basket: the price of butter drops by 28% over one year, while that of olive oil soars by 38%.
However, the inflation rate remains high compared to a longer period in the past said Ruth Brand, President of Destatis. Above all, ” high food and energy prices against the backdrop of a prolonged period of war and crisis are being felt by consumers “, she added.
Sharp slowdown in economic activity
And for good reason: inflation coupled with increases in key rates, which make access to credit more difficult, have caused a general weakness in the German economy. In Berlin, the government expects a drop of 0.4% in Germany’s gross domestic product (GDP) in 2023. According to the International Monetary Fund (IMF), Germany will even be the only country in the G7 in recession this year.
German exports notably fell by 2.4% in September over one month compared to a decline of 2.1% within the European Union. German industry remains penalized by high energy prices, rising interest rates causing a drop in demand and the weakness of important global economic partners, particularly China. “ Supply chain frictions, the fragmentation of the global economy and China’s shift from a major export destination to a competing country are all factors weighing » on German exports, confirms, in fact, Carsten Brzeski, analyst for ING. “Trade is no longer the powerful engine of resilient growth in the German economy that it once was, but rather a drag,” concludes the analyst, who is counting, “at best”, on a scenario of stagnation for the country over the coming months.
The latest confidence indicators, however, suggest that German industry “may have bottomed out in the third quarter » and that one “gradual recovery could manifest itself at the turn of the year 2023-2024 », Still commented the Ministry of the Economy in a separate press release.
The ECB tempted by a stabilization of its rates
This good news on German inflation should push the European Central Bank to review its monetary policy. As a reminder, during its monthly meeting on October 26, the institution announced that it was maintaining its range of key interest rates between 4% and 4.75% – their highest level since the creation of the euro in 1999 – after having increased them by 0.25 basis points in September for the tenth consecutive time.
A pause motivated by the fact that inflation in the euro zone fell to its lowest in two years, to 4.2% in September. If the latter remains far from the ECB’s 2% objective, its president Christine Lagarde announced that “rates are at high enough levels and should remain at these levels to achieve our inflation target”. The big question now is no longer that of future increases but rather that of the duration of maintaining historically high rates. The Frankfurt institution could indeed remain “on hold until at least mid-2024”, said Frederik Ducrozet, chief economist at Pictet Wealth Management in September. Given the resilience of inflation, other analysts are counting on a decline at the end of 2024 or even the beginning of 2025.
(With AFP)
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