The decline in inflation in Germany has stopped for the time being. In May, the inflation rate is rising again.
Inflation in Germany has picked up again for the first time this year. Consumer prices in May were 2.4 percent higher than in the same month last year, the Federal Statistical Office announced on Wednesday in Wiesbaden based on preliminary data. The decline in inflation had already stalled in April at a rate of 2.2 percent.
According to preliminary data, energy costs were 1.1 percent lower in May than a year earlier, although the regular VAT rate of 19 percent has again applied to natural gas and district heating since April 1. In order to cushion the high energy prices as a result of Russia’s war of aggression against Ukraine, politicians had reduced the VAT on energy to 7 percent from October 1, 2022 to March 31, 2024.
According to preliminary data, consumers had to pay a total of 0.6 percent more for food in May than a year earlier.
Services are expected to become more expensive by 3.9 percent. Prices for insurance services rose particularly sharply, according to data from state statistical offices. People also had to pay more for visiting restaurants than they did a year earlier. Higher inflation rates weaken consumers’ purchasing power.
Economists had expected inflation to pick up in May, citing higher wages as a potential cause for companies to increase prices.
In the first quarter, wage increases and inflation compensation premiums led to a significant increase in employees’ nominal wages of 6.4 percent. Since consumer prices only rose by 2.5 percent during this period, real wages increased by 3.8 percent. This was the strongest increase since the statistics were introduced in 2008, as the Federal Office also announced on Wednesday.
The increase in real wages strengthens the purchasing power of consumers, which can boost consumption as an important economic pillar. In the first quarter, however, people were still holding on to their money. That could now change.
The purchasing mood of people in Germany has improved for the fourth time in a row, according to the latest consumer climate study by the Nuremberg research institutes GfK and NIM. However, the inclination to make larger purchases is still muted.
Compared to the previous month of April, consumer prices rose by 0.1 percent in May, according to preliminary data.
The extremely high inflation rates of the past two years are now history. On average for the year, leading economic research institutes expect inflation in Europe’s largest economy to fall significantly to 2.3 percent, down from 5.9 percent last year.