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Rising inflation in Germany

2025-01-08 08:10:00, Kosova & Bota CNA

The big wave of price increases in Germany has broken, but the rate of inflation has recently increased. What are the causes?

Inflation in Germany remains higher than expected. At a rate of 2.6 percent, December brought the third consecutive increase and the second-highest inflation rate in 2024, Germany's Federal Statistics Office reported. Economists currently do not expect a significant drop in consumer prices, but believe that a major new wave of price increases is unlikely.

"In January, inflation may remain at a similar level due to higher fuel prices and insurance services," predicts Commerzbank economist Jörg Krämer. He adds: "The inflation problem has not been solved yet."

Michael Heise, economist at HQ Trust, doesn't see any relief for consumers in January either. The increase in the carbon dioxide tax, the increase in the price of the public transport ticket, the rising costs of health insurance and economic services could result in a price increase of about 2.5 percent, he says.

Annual inflation 2.2 percent

Despite the increase in inflation in December, inflation in Germany has fallen significantly compared to previous years. According to statistical data, on average for 2024 the prices of goods and services have increased by 2.2 percent compared to the previous year. For comparison, the inflation rate in 2023 was 5.9 percent, while in 2022 it was 6.9 percent. As a result of the Russian attack on Ukraine in February 2022, the prices of energy products rose significantly. Even in 2021, inflation was significantly higher, with an average rate of 3.1 percent.

Inflation above 2 percent

Economists expect inflation to remain above 2 percent through 2025. Some experts see less room for the European Central Bank (ECB) to cut interest rates. However, no expert expects a new wave of price increases, like those in 2022 and 2023, when the inflation rate in Europe's largest economy reached almost 9 percent. Instead, the annual inflation rate for 2025 is expected to be at the level of 2024, and some experts say it could be around 2.1 percent.

Higher inflation rates reduce the purchasing power of consumers. Inflation also cancels out the effect of income growth. In December, services increased the most, by about 4.1 percent. Foods have increased by about 2 percent on average. While fuel prices have fallen by 1.7 percent. Despite the crisis, many economists think that the situation will largely stabilize in 2025./ DW