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In Germany, inflation slows after reaching record highs

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Inflation slowed somewhat in June in Germany, thanks to purchasing power measures decided by the government in the transport sector, but remains at a historically high level, according to provisional figures published on Wednesday 29 June.

The rise in prices reached 7.6% over one year, or 0.3 points less compared to the record value of May, detailed the German statistical institute Destatis. It is lower than the forecasts of some analysts, who expected a price increase of 8.1%.

The harmonized price index, which serves as a reference at European level, also fell slightly, to 8.2%, but remains very far from the medium-term objective of 2% of the ECB. This is the first slowdown in inflation since January in Germany. Over one month, inflation stabilized at 0.1%.

Measures in favor of purchasing power

This drop is explained in particular by the temporary measures put in place by the government to reduce the energy bill of households, according to Destatis. In June, the country introduced an exceptional fuel tax reduction and a €9 per month ticket valid on all public transport, excluding high-speed lines.

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These measures have “reduces June year-on-year inflation by 0.3 and 0.8 points respectively”according to Salomon Fiedler, analyst for investment bank Beremberg. “This is proof that it is currently governments and not central banks that can lower inflation. commented Carsten Brzeski, analyst for ING Direct.

The surge in energy prices, caused by the war in Ukraine, thus slowed slightly, to 38%, against 38.3% in May. Food prices, on the other hand, continued to soar, again under the effect of the war, to 12.7% in June, against 11.1% in May. Goods prices also climbed 14% in June, slightly more than in May, due to persistent shortages of raw materials.

Acceleration elsewhere in Europe

This trend is not unique to all of Europe. In Spain, inflation notably reached a 37-year-old record, settling in June at 10.2% over one year. This figure, if confirmed, “would mark an increase of one and a half points” consumer prices year on year in one month, since the increase in May was 8.7%, said Wednesday morning the National Institute of Statistics and Economic Studies (Insee).

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In France, the inflation figures for June will be published on Thursday. In May, the rise in prices had exceeded 5%, a threshold that had not been crossed since 1985, to reach 5.2% over 12 months. An acceleration due in particular to the soaring prices of energy, services and food against a backdrop of war in Ukraine. According to INSEE projections, inflation should continue to climb to come close to 7% in September.

The explosion in prices, which affects all of Europe, prompted the European Central Bank (ECB) to decide to raise rates in July, for the first time in 11 years. The ECB will go “as far as necessary” to combat inflation, which is expected to remain high “for a while yet” in the euro zone, its president, Christine Lagarde, acknowledged on Tuesday.

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