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Germany: Inflation falls below 9% in December

January 3, 2023

Monthly inflation in Germany fell from 10% to just 8.6% in December, while the overall inflation rate for the year 2022 hit a record 7.9%, according to new government figures.

A person walks in a supermarket
A person walks in a supermarketImage: Carsten Milbret/imageBROKER/IMAGO

Inflation in Germany fell to 8.6% in December based on year-on-year changes to the consumer price index (CPI), according to data from Germany's Federal Office of Statistics (Destatis).

The yearly inflation rate for 2022 hit a record high of 7.9% — the highest level since reunification in 1990 —, according to Destatis. The average rate in 2021 was 3.1%. 

Year-on-year inflation in December marks a fall from the 10% rate in November, which itself was a slight decrease from the record rate of 10.4% in October. The figures, however, are still at a high level that far exceeds the goal of just 2% inflation.

Energy prices in Germany were up by 24.4% and food prices were up 20.7% in December, compared with a year earlier.

Why is inflation a problem?

Inflation, measured as a change in the price of consumer goods, means that the things people need to buy to survive are getting more expensive.

If wages do not increase, then inflation means people become poorer as their money can do less. But experts warn that increasing wages can further stoke inflation as companies raise their prices to match the influx of money being spent in the economy.

The current soaring prices seen all around the world are believed to have been triggered by massive government spending during the coronavirus pandemic, but the war in Ukraine and the subsequent rise in energy prices is seen as exacerbating the pre-existing situation.

While the energy crisis has hit Germany and other European countries that were dependent on Russian oil and gas particularly hard, less economically developed countries with weaker currencies will likely suffer more as poorer households tend to spend a much larger share of their income on consumer goods.

What is Germany's economic outlook?

A member of the German Council of Economic Experts, a body that advises the German government on economic matters, said that it may take until 2024 to bring inflation back under control.

"Inflation will also be an issue in 2024, and only thereafter will we maybe see it returning to 2%," Monika Schnitzer told the Rheinischer Post newspaper in December.

The Munich-based economic research firm Ifo has predicted that overall inflation in 2023 will fall to 6.4%, down from its estimate of 7.8% in 2022.

Due to the slowing inflation and decreasing energy costs, the institute also predicted in December that economic output in Germany would shrink by 0.1% — less than the 0.3% contraction previously envisioned.

ab/fb (dpa, AFP)

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