Inflation falls sharply in December, a further increase is expected in early 2023

The calm will not last. If inflation slowed significantly in December in Germany, a further increase is expected in early 2023, according to preliminary data published on Tuesday.

The increase in the price index reached 8.6% over a year and lost 1.4 points compared to November, the statistical institute Destatis informs in a press release. Throughout 2022, marked by skyrocketing energy costs, inflation rose to 7.9%, unheard of in decades. The previous record dated back to 1951 with 7.6%, the Destatis institute told AFP. Over the course of a month, prices fell by 0.8 per cent.

Inflation peaked at 10.4% year-on-year in October (national standards) in Europe’s biggest economy, hit hard by rising energy prices in the wake of the war in Ukraine. Several factors played in favor of a drop in prices, starting with one-off government support that households and businesses received in December for gas prices. Enough to lower overall prices to an extent not yet specified by Destatis.

The energy shock is not over

Mild temperatures have also slowed demand, while gas supplies remain plentiful, with reservoirs over 90% full in the country and the first direct deliveries of liquefied natural gas (LNG) to German territory.

Food inflation, fueled by the war in Ukraine, fell just 0.4 percentage points to 20.7% year-on-year in December. Service prices show no sign of moderating, at +3.9%, a sign that pent-up demand is catching up with demand during the Covid-19 years. The energy shock is not done driving prices up, according to the European Central Bank (ECB).

“We have good reason to believe” that inflation rates in January and February “are likely to be higher,” the president of the monetary institution Christine Lagarde said in December. Many companies will indeed pass on the extra energy costs to their sales prices during this period, explained the president of the ECB.

Leave a Comment