Inflation Rises to 2.1% in January as Food and Fuel Costs Surge

Consumer prices rose more sharply again in January, according to preliminary data released by the Federal Statistical Office. The inflation rate climbed 2.1% compared with the same month last year. In December, inflation had stood at 1.8%. Analysts attributed the increase mainly to a significant rise in fuel prices.

‍

Economist Stephanie Schoenwald of the development bank KfW said that, among other factors, more expensive food contributed to January’s inflation. Food prices were 2.1% higher than a year earlier, according to the statistics office. In December, the increase had been only 0.8%.

‍

Another driver, as in previous months, was the services sector. Service prices rose 3.2% in January. In October, November and December, they had increased by 3.5% each month. Carsten Brzeski of ING pointed to sharply higher healthcare costs as a key factor. Energy prices, by contrast, fell 1.7% year-on-year in January, a stronger decline than in December, when they had dropped 1.3%.

‍

On a monthly basis, however, analysts said the sharp rise in fuel prices was responsible for the comparatively strong increase in inflation. “Geopolitical tensions caused crude oil prices to rise by around 15% since late December,” explained KfW analyst Schoenwald. Together with the increase in the CO₂ price at the start of the year, this had a noticeable impact on fuel costs.

‍

The monetary-policy expert Silke Tober of the Institute for Macroeconomic and Economic Research (IMK) emphasized that fuel prices had risen “more than twice as strongly as would be expected from the CO₂ price alone.” The reason, she said, was escalating tensions between the United States and Iran, which had driven crude-oil prices sharply higher.

‍

The price per tonne of CO₂ emitted through the combustion of heating oil, natural gas, diesel and petrol increased on 1 January from €55 to €65. As a result, the prices for petrol and diesel rose “abruptly,” by an average of nine cents per litre, according to the Federal Cartel Office. Offsetting effects came from lower grid-usage fees and the reduced value-added tax rate in the hospitality sector.

‍

ING analyst Brzeski expects the inflation rate to fluctuate “around the 2% mark” in the coming months. Dampening factors, he said, include a stronger euro and “companies redirecting products from the United States to Europe at dumping prices.” Over the longer term, he said, government stimulus packages are likely to drive inflation upward.