Sunday, May 22

Germany: Inflation slows to 4.9% in January, a first since June

Passers-by in front of a shopping center in central Berlin, December 14, 2020John MACDOUGALL

Inflation in Germany reached 4.9% year on year in January, slowing thanks to the end of a VAT-related base effect, but still pushed by soaring energy prices and shortages, according to provisional official figures released on Monday.

The indicator is experiencing its first slowdown since June 2021, after peaking at 5.3% in December. Over one month, prices increased by 0.4%, the statistical institute Destatis said in a press release.

But it exceeds the forecasts of experts quoted by the financial tool Factset, which forecast inflation at 4.6%.

“Another inflation figure that exceeds expectations,” commented Jens Oliver Niklasch, analyst for the LBBW bank, in a context of great uncertainty, in the euro zone, on the duration of this overheating of prices.

Inflation remains at a “high” level, estimates Destatis.

The slowdown in January is essentially linked to the end of a base effect on the VAT rate in Germany.

This tax had been reduced by 3 points between July and December 2020 to support consumption, at the end of the first wave of Covid-19.

“With the disappearance of the effect of the new VAT increase, the decline should have been more pronounced,” comments Jens Oliver Niklasch.

The reason for this lower than expected decline: a further acceleration in the rise in energy prices, to 20.5%, which had nevertheless begun to decline in December, to 18.3%.

For several months, gas and electricity prices have been soaring in Europe, while demand is exploding to fuel the economic recovery.

Goods prices for their part rose by 7.2%, or 0.6 points less compared to December, according to Destatis.

These are stimulated by the shortages of raw materials and components which affect many supply chains, disrupted by the coronavirus pandemic since the spring.

The harmonized price index, which serves as a benchmark at European level, reached 5.1%, well above the European Central Bank’s (ECB) target of 2% inflation in the euro zone. .

According to the institution, this phenomenon must however remain transitory, and should decrease in 2023, after a peak reached in 2022.

Price dynamics should “be the subject of discussion at the next monetary policy meeting” of the ECB, scheduled for Thursday, said Jens Oliver Niklasch. Spain also published a sustained inflation figure on Monday, at 6% in January.

In Germany, a country attached to monetary stability and allergic to inflation, the phenomenon is of particular concern.

“We have to react to this inflationary situation,” Finance Minister Christian Lindner told the daily Die Welt on Monday.

The ECB considers premature for the moment any increase in rates intended to curb price increases.

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