Germany saw a drop in inflation in January and costs for customers rose 2. 9%, up from 3. 7% in December, according to government statistics Destatis.
The federal agency said the shift was partly driven by falling energy prices, while the rising cost of food also eased. It noted that it was the slowest pace of change since June 2021, when the consumer price index rose by 2.4 percent.
Germany’s full-year inflation rate for 2023 stood at 5.9 percent, marking a notable decrease from the 6.9 percent recorded in 2022, yet still the second-highest rate since the country’s reunification more than three decades ago.
Despite the downward trajectory of inflation in Europe’s largest economy, the European Central Bank, or ECB, probably doesn’t consider this enough to justify a quick cut in borrowing costs. Most economists expect Germany’s inflation rate to fall further this year, Deutsche Welle News reported.
The ECB will keep its key interest rates unchanged on 25 January as part of its ongoing efforts to reach the euro area’s 2% inflation target. Average inflation in the eurozone fell to 2. 9% at the end of last year.
The ECB raised interest rates several times in 2022 and 2023 to combat inflation. While higher interest rates can help reduce demand and counteract peak inflation rates, they can also cause disruption in the economy as credit-financed investments become more expensive.
According to ECB President Christine Lagarde, the first reduction in interest rates could occur in the summer, contingent upon the latest economic data supporting the move.
The Munich-based IFO Institute economic research group revealed on Wednesday a significant number of consumer-facing companies in Germany expect to raise prices in the coming year.
“Inflation is therefore likely to fall only slowly in the coming months,” said the institute’s economic research director, Timo Wollmershauser.
The increases in value were attributed to the fallout from the Russia-Ukraine conflict, which began in February 2022 and led to a significant increase in the value of food and energy. Supply chain disruptions and production issues caused by the novel coronavirus pandemic were also major factors.