German inflation holds steady at 2 percent in August

Source: Xinhua | 2018-09-14

Price inflation in Germany held steady last month, official figures published on Thursday by the Federal Statistical Office showed

According to the Wiesbaden-based government agency, consumer prices were 2.0 percent higher in August compared to the same period last year. It was the fourth month in a row that the annual inflation rate has come in at or above 2 percent in Germany, adding to signs of an increasingly mature economic recovery in the country since the 2007/08 financial crisis.

On a monthly basis, prices were up by 0.1 percent in August compared to July. The findings confirmed preliminary estimates released earlier by the Federal Statistical Office.

As already held true for previous month, German inflation was largely driven by a sustained rise in energy costs (plus 6.9 percent compared to August 2017). Heating oil was 29.7 percent more expensive, while fuel prices rose by 12.4 percent. Back in July and June, consumers already experienced steep increases in average energy costs of 6.6 and 6.4 percent respectively.

Food prices rose again as well by 2.5 percent, marking a slightly lower annual rate of growth than had been registered in July (plus 2.6 percent). In contrast to energy and food, electronic consumer products (minus 4.8 percent) cheapened during the period under scrutiny.

Overall, prices in the broader category of consumer goods rose by 2.7 percent on average compared to August 2017. Excluding energy and food, overall inflation in July would have been measured at 1.3 percent.

The cost of services in Germany increased at a slower pace than for goods at 1.4 percent. While rental prices shouldered by tenants were up by 1.6 percent, the price of airfare declined by an annual 6.2 percent between August 2017 and August 2018.

Speaking to Xinhua on Thursday, Thiess Petersen, senior economics expert at the Bertelsmann foundation, explained that higher inflation was reflective of growing pressure on the productive capacities of German firms after several years of growth.

"The German economy has expanded continuously since the summer of 2009. We are gradually reaching capacity bottlenecks which results in price increases.", Petersen said. He predicted that the annual inflation rate in Germany was likely to remain at its currently elevated level of roughly two percent in 2019 and 2020.

The Bertelsmann expert hereby argued that higher consumer price growth than witnessed in the eurozone's largest economy during recent years would not yet justify a tightening of the supply of credit provided by the European Central Bank (ECB). Petersen told Xinhua that he only expected the Frankfurt-based institution to raise its base interest rate slowly and carefully in the course of 2019.

The ECB sets an official target inflation rate of close to, but below, two percent on average across the Eurozone.

German policymakers and central bankers have repeated warned that the ultra-loose monetary stance adopted by the Frankfurt-based institution in response to the 2007/08 financial crisis and 2010 sovereign debt crisis could eventually stoke inflation. The ECB has recently announced that it is preparing for a gradual exit from the large-scale bond purchasing program which it first launched in 2015.