Inflation in Germany has continued to weaken. In March consumer prices were 2.2 percent higher than in the same month last year, as announced on Tuesday by the Federal Statistical Office in Wiesbaden based on preliminary data. This is the lowest value since April 2021, when it was 2.0 percent. In February the annual inflation rate was 2.5 percent and in January it was 2.9 percent.

Despite the curbs on energy prices that expired at the beginning of the year and the increase in the price of CO2 to 45 euros per ton of carbon dioxide (CO2), energy prices fell by 2.7 percent in March. Consumers paid 0.7 percent less for food than a year earlier. For the first time since February 2015, food prices were below the level of the same month last year.

According to preliminary data, services increased by 3.7 percent. Among other things, visits to pubs and restaurants became more expensive, as shown by data from state statistical offices. From January 1, 2024, the normal VAT rate of 19 percent applies again to food in restaurants. According to state offices, the prices of tourist packages and flights also increased during the month of Easter compared to the same month last year.

Compared to the previous February, consumer prices increased by 0.4 percent in total.

A new drop in inflation is expected

The Ifo Institute expects a new drop in inflation. Inflation is likely to fall below 2 percent in the summer, the economic director of the Munich Institute, Timo Wollmershäuser, said on Tuesday. The latest data collected by economic researchers has also contributed to this assessment, according to which fewer and fewer companies want to increase the prices of their products. On average for the year, leading economic research institutes expect inflation to weaken significantly to 2.3 percent, after last year's 5.9 percent.

However, in a survey conducted in mid-February, many people expressed concern about new energy price increases and general price increases. The vast majority (83 percent) of the roughly 1,000 respondents say they are trying to curb spending, as the Schufa survey showed. 75 percent consciously spend less when they shop. “The results of the current survey show that the mood in many German households remains very tense, and this is also reflected in the everyday behavior of consumers,” explained Schufa board member Ole Schröder.

Higher inflation rates reduce consumers' purchasing power. People can afford one euro less. That's why last year many consumers opted for the red pencil. Private consumption failed to provide significant economic support.

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