Inflation is approaching the central bank’s target of 2 percent

According to the European calculation method, consumer prices in Germany will rise by 2 percent in March. Energy in particular is becoming more expensive, but consumers also have to spend more on food than they did a year ago.

Food has become even more expensive.

Dhe inflation in Germany continues to rise. In March the inflation rate was 1.7 percent according to the national calculation method of the CPI, after 1.3 percent in February, as the Federal Statistical Office (Destatis) in Wiesbaden announced on Tuesday based on an initial estimate. Energy became more expensive (plus 4.8 percent), but also food (plus 1.6 percent). Measured according to the Harmonized Consumer Price Index HICP, which is used by the European Central Bank, among others, inflation was even higher and amounted to 2 percent.

The two calculation methods differ in many ways. Among other things, the weighting of the various goods and services in the HICP has already been adjusted to the Corona crisis. Package tours now play a smaller role there, food a bigger role.

The Bundesbank expects that inflation will continue to rise in the coming months due to the rise in crude oil prices. It refers to the HICP value calculated for the European comparison, which is also relevant for the ECB. In the second half of the year, due to the VAT reduction in the previous year, high inflation rates are to be expected at times: “From today’s perspective, they could at times significantly exceed 3 percent at the end of the year,” writes the Bundesbank in a report.

Inflation has already reached its pre-crisis level, said consumer price specialist Susanne Hagenkort-Rieger in a recent press conference. In particular, the rise in the price of petrol and heating oil in the first two months of this year was exceptionally high. In January, gasoline in Germany was 11 percent more expensive than December. That was the highest price increase in 27 years. In February fuel prices then increased by another 3 percent. Heating oil was 14 percent more expensive in January than in the previous month, and by 6.5 percent in February.

After half a year of negative monthly inflation rates due to corona, inflation this year in Germany has now “jumped” higher, with 1 percent in January and 1.3 percent in February, reports the Federal Office. The experts blame three special effects for this: the renewed increase in VAT compared to December 2020, the introduction of a CO2 price on fuels and heating oil at the turn of the year and the sharp rise in the price of crude oil. The latter was based on the expectation of a global economic recovery and an artificial shortage of production volumes by the oil states.

The Federal Statistical Office is expecting a further rise in inflation over the course of the year due to two basic effects alone: ​​From April onwards, it should become noticeable that the oil price collapsed with the first lockdown in the previous year. The price of American oil even turned negative at times. If you compare the prices from this year with the exceptionally low prices of the previous year, this should drive the inflation rate up from April onwards.

A second base effect will become noticeable from July when the prices from this year including the higher VAT are compared with those from the previous year with the lower tax. The tax was reduced for a limited period from July 1st to December 31st. If the VAT cut had been passed on to the consumer in full, the inflation rate would have arithmetically reduced by 1.6 percentage points over this period. According to surveys by the Deutsche Bundesbank, only about half of this happened. That’ll be added again now.

While the renewed tax hike in January had an immediate effect on prices compared to the previous month, it will now be felt as a base effect year-on-year from summer onwards. The Economic Advisory Council put the effect of the CO2 tax on inflation at 0.5 percentage points through the rise in the price of petrol and heating oil alone, and even around one percentage point when other intermediate goods are taken into account. The further effects of the price of crude oil on inflation are more difficult to predict.