The decline in inflation in Germany stops: it is stable in April

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The decline in inflation in Germany stopped in April, recording a +2.2% year-on-year: the preliminary data estimated by the federal statistics institute Destatis is at the same level as March.

The good news is that energy prices in April 2024 were 1.2% lower than the same month last year, despite the end of the energy price curb starting in January 2024 and the end of the temporary reduction in VAT (from 19 to 7%) for gas and heating from April. On the other hand, food prices rose by 0.5% in April compared to the same month in 2023. The impact of the Easter holidays which usually exert upward pressure on prices this year was in March and only on Easter Monday the first April.

Although the April estimate is slightly better than the +2.3% expected by economists and markets, the fact that inflation has not fallen following three consecutive months (following +3.7% in December 2022, it fell in January at +2.9%, February +2.5%, March and April +2.2%) leaves many question marks open regarding the future of price trends in Germany.

Economists at Commerzbank expect the core inflation rate to stabilize around 3% in the coming months: companies in the service sector, in particular, will pass on the massive increase in wage costs to their customers. «The main factor that will drive developments in the coming months will be the extent to which companies are able to pass on the increased wage costs to their customers – they explain -. The recent stronger short-term upward momentum in service prices shows that companies have started to pass on wage costs to customers and this will continue in the coming months. For this reason, the core inflation rate should stabilize around 3%.”

According to Fritzi Köhler-Geib, chief economist of KfW (German CDP), «risks remain for the timely achievement of the inflation target (editor’s note: 2% in the medium term). A decisive factor will be how weak productivity growth, combined with strong wage increases, determines the overall economic pressure on prices.”