Inflation fell to 2.2 percent in April. picture alliance / Zoonar | stock photos-mg
Deutsche Bank predicts that inflation in Germany could temporarily fall below two percent.
Reduced energy prices and stabilized supply chains are the main reasons for the decline in inflation.
Nevertheless, the report warns of risks arising from the geopolitical situation and dependence on energy prices. Inflation could rise to 2.0 to 2.5 percent by the end of the year.
In a new report, Deutsche Bank predicts that inflation in Germany could temporarily fall below the two percent mark in the coming months. The report, written by Sebastian Becker, senior economist at Deutsche Bank, analyzes the impact of rising energy prices and their potential consequences for German inflation.
The economist points to the drastic surge in inflation triggered by the energy price shock resulting from the war in Ukraine. In October and November 2022, inflation in Germany peaked at 8.8 percent and rose by 9.4 percentage points compared to 2020.
By comparison, in the 1970s, after the oil price shocks, inflation rose to 6.5 percent and 3.8 percent, according to the bank – and took longer to decline. However, the inflation rate has currently fallen to 2.2 percent in April 2024 and has therefore declined significantly faster.
Deutsche Bank now assumes that inflation could even fall below two percent in the short term in the summer. The reason is the decline in energy prices, especially gas and oil, and the normalization of supply chains. Despite rising wages, which are keeping pressure on service prices high, the bank sees no signs of a dangerous wage-price spiral.
At the same time, however, the report warns of risks resulting from the current geopolitical situation and dependence on energy prices. A further increase in the price of oil by $10 per barrel could raise German inflation by around 0.15 percentage points. If the price of oil rises to 130 US dollars (around 120 euros) per barrel, as in the crisis year of 2022, inflation could increase by a total of 1.5 percentage points and reach the 4 percent mark.
Although inflation could fall below 2 percent in the summer, the bank expects it to rise to around 2.0 to 2.5 percent by the end of the year. The reason for this is rising wages and higher costs in the service industry, which could affect prices.