Consumer prices in Germany rose significantly less in June than they had after the start of the Iran war, as the government's fuel discount and recently falling crude oil prices took effect. The inflation rate eased to 2.3 percent year-on-year, the Federal Statistical Office (Destatis) announced in an initial estimate on Tuesday. In May, the inflation rate had stood at 2.6 percent.
Energy prices in June are estimated to have risen by 3.4 percent compared with the same month last year. Statisticians said inflation in the energy sector had eased again. In May, energy price inflation had still reached 6.6 percent year-on-year, and in April as much as 10.1 percent. Food prices rose by 0.4 percent in June, the same rate as the previous month, while services prices increased by 3.1 percent.
Because of the Iran war, inflation in Germany had risen sharply in spring, reaching 2.9 percent in April, well above the European Central Bank's (ECB) two-percent target. By May, the state fuel discount had already begun to have a dampening effect; it is now set to expire at the end of the month.
Whether consumer price growth will continue to decline in the coming months remains to be seen, commented economist Stephanie Schoenwald of KfW Research. While the "inflation shock" is easing alongside the calming situation in the Middle East, and "fuel in particular is becoming cheaper again," she explained, the situation in the
Persian Gulf remains "still fragile, and gas prices have not followed the rapid decline in oil prices." She added that the currently very favorable trend in food prices could "soon come to an end," given high fertilizer prices and the El Niño weather phenomenon.
Silke Tober, inflation expert at the Institute for Macroeconomics and Economic Research (IMK) at the Hans Böckler Foundation, explained that the decline in inflation in June was attributable to energy prices, just as the rise through April had been. "If the ceasefire between the United States and Iran holds, the end of the fuel discount in July is likely to have only a minor impact on inflation, given the now lower crude oil prices," she said.
ING analyst Carsten Brzeski, however, said the new inflation figures provided "hardly any indication of follow-on effects or indirect impacts of higher energy prices on the rest of the economy." With the end of the government's tax relief at petrol stations in sight, he said, the inflation rate could rise again in the coming months, "even if global energy prices have fallen."
Brzeski also pointed out that the current heatwave in Europe poses an additional inflation risk. Lower water levels on key waterways could lead to supply chain disruptions, he said, while crop damage could drive up food price inflation. The Federal Statistical Office's figures for June inflation are still provisional. Final results will be published on July 10.
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