Germany: Disinflation at an end?

The German inflation rate rose again in May for the first time in almost a year.

Dr Ralph Solveen

Commerzbank Economic Research

May 29 2024

Even though the increase from 2.2% to 2.4% is largely due to a base effect, there are increasing signs that the downward trend in the inflation rate has come to an end for the time being. The core inflation rate has been stable at 3.0% due to the base effect. In view of the persistently strong upward trend in service prices, which is also likely to be driven by significantly higher wage costs in the coming months, we do expect the core rate to stabilize in the coming months close to its current level of 3.0% and thus remain well above the ECB's target of 2%.

Is this the end of the downward trend in the German inflation rate that has been observed for a year and a half? At least the inflation rate rose from 2.2% to 2.4% in May. It should be noted that this increase is largely due to the fact that the effect of the introduction of the “Germany ticket” (a cheaper ticket for public transport) in May 2023 no longer pushes the previous year's rate down. However, even without this base effect, the inflation rate would not have fallen for the second month in a row.

The core inflation rate excluding energy and food was unchanged at 3.0%. Of course, the aforementioned base effect also plays a role here. Without it, the core inflation rate would have fallen slightly. Inflation for goods has continued to weaken, while for services it has remained at a fairly high level of almost 4% for several months, if the effect of the “Germany ticket” is excluded.

For full text see attached PDF-Version.