Persisting rise in inflation in Germany for May, notably impacting food costs by 2.1%.
Inflation in Germany remains steady at 2.1% in May, as food prices rise while energy costs drop
The German inflation rate held steady in May at 2.1%, according to preliminary data from the Federal Statistical Office. This is the same rate as reported in April. While food prices rose by 2.8% in May, energy costs declined by 4.6% compared to the same month last year, offering some relief to consumers.
Food prices have steadily increased, but a decline in energy prices provides some reprieve for consumers. In May, energy prices fell by 4.6% compared to the previous year, following a 5.4% decrease in April. Reduced electricity tax added to the relief as oil prices dropped due to global economic concerns. However, fuel prices reversed course mid-month, with Super E10 gasoline and diesel prices rising slightly.
Meanwhile, food prices continued to rise disproportionately, increasing by 2.8% in May, as they did in April. High inflation for services like restaurant visits, holiday packages, and car repairs persists, as prices for these services rose by 3.4% compared to May 2024. The rapid transmission of labor costs to customers, particularly for services with high labor cost shares, contributes to these price increases.
Commerzbank's chief economist, Jörg Krämer, raised concerns about the persistently high core inflation. According to Krämer, core inflation – which excludes volatile food and energy prices – remained significantly above the European Central Bank's (ECB) target of 2% at 2.8%. Krämer described the inflation rate as "persistent."
Overall consumer prices in May increased by just 0.1% compared to April, according to preliminary calculations by the Federal Office. In the eurozone, inflation has stayed stable at 2.2% in April, according to Eurostat data. The ECB aims to keep inflation at around 2%, but central bankers seek to avoid prolonged deflation to prevent companies and consumers from delaying investments out of fear of even lower future prices, which could impede economic growth.
The ECB has cut interest rates seven times since June 2024, most recently in May, bringing the deposit facility rate to 2.25% and the main refinancing operations rate to 2.40%. Economists expect the ECB to lower interest rates further next week, with the deposit rate possibly falling to 2.0%. Lower interest rates could enable more affordable loans, stimulating economic growth, but may result in decreased interest rates for savers on daily and fixed-term deposit offers.
The future direction of prices in Germany's export-oriented economy will depend on the course of trade relations with the U.S. The Bundesbank anticipates that the inflation rate in Germany will fluctuate around the 2% mark in the coming months. Various forecasts predict that an average of around 2% inflation will be achieved for the entire year of 2025. In 2024, the inflation rate in Germany averaged 2.2%.
- "What could be the impact of the ongoing decline in energy prices on the finance sector in Germany?"
- "Considering the high core inflation rate, what financial strategies might be recommended by economists to manage personal expenses in the current market?"
