Inflation is likely to ease in the coming weeks, including on food. Benjamin Nolte / Picture Alliance
The inflation rate in Germany was still very high at 6.2 percent in July. From late summer, however, prices should finally rise much more slowly.
This is shown by a look at the price development at upstream economic levels. Our charts show that import, producer and wholesale prices are already falling.
From September, some special effects will no longer apply. It is still too early to give the all-clear. Prices will continue to rise, albeit at a noticeably slower pace.
Consumers in Germany are suffering from a historic wave of inflation. Not only have prices risen particularly quickly, but the wave of inflation has also lasted for a particularly long time. In July, the inflation rate was still 6.2 percent. Food was more than ten percent more expensive than a year ago. In the next few weeks, however, inflation is likely to drop noticeably, and some prices could even fall. This also applies to food. By September at the latest, the general rate of inflation should also fall noticeably. This is shown by a look at the new facts and figures.
1. Import prices are falling at record speed
Die import prices fall, and the rate of price decline is even increasing. This is mainly due to the prices for energy imports. Gas, oil and coal prices also rose the most after Russia’s invasion of Ukraine. In June 2023, import prices were a whopping 11.4 percent below the previous year. This was the sharpest year-on-year price decline in 14 years, the Federal Statistical Office said.
Energy imports were even around 44 percent cheaper in June than a year ago. But even excluding energy prices, import prices were 2.0 percent lower in May. The chart shows that the major pressure from energy prices on import prices is over.
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2. Producer prices are no longer rising
For companies that produce in Germany, the price pressure has been easing for months – and has largely evaporated. In June they were producer prices only 0.1 percent higher than a year ago. That was the slowest increase since December 2020, before the start of the Ukraine war. Our graphic shows this. The increase in producer prices is now lower than the general inflation rate. In a month-to-month comparison, producer prices also fell slightly in June versus May.
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In the case of agricultural products, prices at the producer level are even falling. Prices here in June were down 4.9 year on year, that shared Federal Statistical Office on Monday with This was the third decline in a row. Vegetable products in particular, such as fruit, vegetables and cereals, became around 10 percent cheaper at the producer level. For animal products, prices were roughly stable.
3. Wholesale prices have been falling for months
Wholesale trade is even closer to consumers. The prices for July are already available here. They were 2.8 percent lower than a year ago. In wholesale, this was the fourth price decline in a row. Compared to June, wholesale prices fell by 0.2 percent.
In wholesale, too, falling energy prices in particular are helping to ease the situation. Oil products were 20.8 percent cheaper than a year ago. Mixed signals are coming from the wholesale trade for food prices: Grain, seeds and animal feed have become significantly cheaper. In contrast, wholesale prices for live animals, fruit and vegetables increased.
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4. But: More companies want to raise their prices
Regular inflation also shows that the battle against inflation is not yet won Ifo Institute survey on price plans of the companies. In June, the price expectations of German companies increased slightly. “For the first time since October 2022, the proportion of companies that want to raise prices on balance has not decreased further,” says ifo economics chief Timo Wollmershäuser. “This means that the decline in domestic inflation is likely to continue.”
There is also relaxation with another price driver of the past few months: Delivery bottlenecks in retail and the Materialknappheit for companies is also continuing to decrease according to current ifo surveys.
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4. Inflation is falling – how quickly depends on the competition
The peak of the inflation wave is over. In parts of the economy, not only is inflation falling, but prices are actually falling. At least that is the case compared to the previous month. Some prices are even lower this spring than a year ago, especially for energy.
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The fourth chart shows what this means for the general inflation rate, i.e. for the development of consumer prices. It follows import, producer and wholesale prices. The prices for consumers do not fluctuate that much. After the price shocks of 2021 and 2022, consumer prices had not risen as quickly and as strongly as prices in the commercial economy. On the other hand, they are not going back as quickly and strongly.
From September, a statistical effect will also cause the inflation rate to fall. In 2022, the state had reduced prices in the months of June to August with the tank discount and the 9-euro ticket. Because these measures are currently not in place, the inflation rate in June, July and August 2023 will be higher than in the previous year. From September, the year-on-year comparison will normalize again.
Conclusion: The general rate of inflation should continue to fall, and this will be noticeable from September. Individual products can also become cheaper for consumers. Overall, however, the upward trend in prices should continue for some time, albeit subdued. How quickly retail prices normalize now depends primarily on functioning competition.
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