September Sees Significant Decline in German Inflation to 4.5%

01 Oct, 2023

September Sees Significant Decline in German Inflation to 4.5%

In September, Germany experienced a significant slowdown in inflation, with the rate dropping to 4.5% from over 6% in the previous month, as per preliminary data released by the Federal Statistical Office (Destatis). This marks the lowest inflation rate since the start of the Russia-Ukraine conflict in February 2022, according to reports from Xinhua news agency.

Destatis attributed this decline in inflation to a base effect resulting from the cessation of government anti-inflation measures, including the fuel discount and subsidized nationwide public transport ticket, in September 2022. Consequently, the rate of price increase in the services sector decelerated to 4%, and energy prices saw a modest 1% increase.

However, the prices of food continued to rise at a faster pace than the overall inflation rate, registering a year-on-year increase of 7.5%. Meanwhile, consumer sentiment in Germany remained stagnant, with market research institute GfK warning that private consumption might not contribute positively to the overall economic development for the year.

The Halle Institute for Economic Research (IWH) and other leading economic institutes in Germany predicted a contraction of 0.6% for the German economy in 2023, revising their earlier forecast, which had projected slight growth. Oliver Holtemoeller, the vice president of IWH, cited the slower recovery of industry and private consumption as the main reason for this revision.

The joint economic forecast by these institutes anticipates an average inflation rate of 6.1% for Germany in 2023, with a decline to 2.6% expected for the following year. To combat persistently high inflation, the European Central Bank (ECB) has incrementally increased its key interest rate to 4.5%, surpassing levels seen during the 2008 financial crisis. Despite these efforts, ECB President Christine Lagarde expressed concerns that inflation is likely to remain elevated for an extended period.