Persistent inflation holds steady at 2.1% rate
Consumer Prices Remain Steady in Germany, Yet Food Costs Rise Above Average
Wiesbaden — Germany's inflation rate held steady at 2.1% in May, alongside preliminary data from the Federal Statistical Office. This rate mirrored the level recorded in April. Notably, food prices escalated while energy costs declined compared to the previous year.
A notable decrease of 4.6% was observed in energy prices, falling below the same month's energy costs in the previous year. This decline continues from the 5.4% drop in energy prices recorded in April. The government's recent announcement of a reduced electricity tax is anticipated to provide further relief.
Conversely, food prices rose by 2.8% in May, compared to a 3.0% spike in March. High prices for services—such as dining out, vacation packages, and car repairs—also persist, with a rate of 3.4% above last year’s level. Such high labor costs are promptly transferred to customers for services with a high labor content share.
Commerzbank's chief economist, Jörg Krämer, has highlighted the ongoing problem of high core inflation. He emphasized, "Without volatile energy and food pricing, the inflation rate remains 2.8% above the European Central Bank's (ECB) target of 2%. Inflation continues to persist."
According to preliminary calculations by the federal office, overall consumer prices increased by 0.1% from April to May.
The eurozone's inflation has remained stable at 2.2%, as indicated by data from Eurostat for April. This figure is slightly above the ECB's medium-term target of 2%.
driven by continued trade tension with the USA.
Impact on Consumer Prices
The current trade dispute between the USA and the EU could lead to selective price increases for German consumers, mainly in the automotive and technology sectors, due to reciprocal tariffs and increased import costs for certain components. Other consumer goods are less likely to be directly affected.
It is essential to watch how the dispute unfolds, as it may cause broader economic uncertainty and indirect effects on prices over time. Key goods like automotive components and technology hardware are likely to experience price hikes, while software and digital services may remain unaffected.
In the ensuing months, it remains to be seen the full extent of the trade dispute's impact on consumer prices in Germany. The durability of the dispute, supply chain adjustments, and the response of companies will all play significant roles in determining the pricing landscape.
Other consumer goods, besides automotive and technology sectors, may not experience direct price increases due to the ongoing trade dispute between the USA and EU. Any potential financial implications from the dispute remain uncertain and will be determined by various factors, such as the durability of the dispute, supply chain adjustments, and companies' responses.
