Decrease in Consumer Prices: June's Inflation Drops to 2.0% Rate
In a surprising turn of events, Germany's inflation rate for June 2021 saw a significant drop, reaching its lowest level in over six months. This unexpected moderation was primarily influenced by two key factors: a slowdown in food price inflation and a reduction in energy prices.
The inflation in food slowed significantly, with the rate dropping to about 2.0% compared to previous higher levels around 2.8% or more. This indicates a softer rise in food costs during that period. On the other hand, energy prices experienced a notable decline, falling by approximately 3.5%. This easing of inflationary pressure, which had been pushed up previously by higher costs for motor fuels, solid fuels, and heating oil, contributed strongly to the inflation drop.
Core inflation, which excludes volatile food and energy prices, remained low or below 1% during June 2021. This suggests that the headline inflation figures were heavily influenced by these categories rather than broad-based price pressures. Another factor reinforcing this drop was the lingering base effect caused by the German VAT reduction in 2020, which had previously inflated prices and now contributed to the relative easing seen in 2021.
The Federal Statistical Office in Wiesbaden has confirmed these latest inflation rate and price changes. It is worth noting that food prices in Germany have also increased by 2.0% compared to the previous month, while energy prices have continued to decrease by 3.5%. However, the overall inflation rate in Germany is lower than it was in June, with consumer prices in the current month being higher than the previous year, but at a lower rate than in June (2.0% compared to 2.0%).
Despite the decline in energy prices, the latest data does not indicate a significant reversal in the trend of decreasing energy prices in Germany. The decline, while persistent, is showing signs of slowing down. Food prices, while increasing, are also doing so at a rate lower than the June increase (2.0% compared to 2.0%).
In conclusion, the unexpected moderation in inflation in June 2021 in Germany largely stemmed from slower price increases in food and a substantial drop in energy prices, combined with statistical base effects from earlier VAT adjustments. This development offers a glimmer of hope for consumers as they navigate the ongoing economic challenges.
Other businesses may find the lower energy prices beneficial for their operations, as utility costs are a significant part of their expenses. The decline in food prices also suggests that other finance areas, such as agriculture and food distribution, might experience improved profitability due to lower costs.
