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Deutsche Welle, German edition:
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Germany: Inflation remains at a high level

As in January, consumer prices in February were 8.7 percent higher than in the same month a year earlier. This is the result of an estimate by the Federal Statistical Office. Experts had expected a decline.

The decline in general inflation in Germany surprisingly failed to materialize in February. Goods and services became more expensive, as in January, by an average of 8.7 percent compared to the same month last year, as announced by the Federal Statistical Office on Wednesday after its first estimate. Economists polled by Reuters news agency had predicted a drop to 8.5 percent. Prices rose 0.8 percent from January to February.

Energy cost 19.1 percent more in February than a year earlier. The upward trend in prices thus weakened here: In January, there had still been an increase of 23.1 percent. Food, on the other hand, rose by 21.8 percent, more than the recent increase of 20.2 percent. Services cost an average of 4.7 percent more than in February 2022.

Experts now expect a turn for the better next month at the latest. "As the explosive rise in energy and food prices following the start of the war in late February 2022 will drop out of the year-on-year comparison from March onwards, the overall inflation rate should fall noticeably from March onwards," said Berenberg Bank's chief economist Holger Schmieding.

It is true that in quite a few German states, the cost of fuel and light heating oil did not rise quite as much in February. "However, this welcome news is more than offset by higher prices in other areas," Schmieding said. For example, people's increasing desire to travel is likely to have contributed to the fact that package tours in North Rhine-Westphalia, for example, cost 8.1 percent more in February than a year earlier, following a rate of 6.2 percent in January. Citizens also had to spend significantly more on overnight stays in hotels and on eating out in restaurants. "High heating costs, expensive food and the shortage of waiters and other staff is probably making itself felt here," Schmieding said.

A survey by the Munich-based Ifo Institute also points to a slowdown in inflation. According to the survey, significantly fewer German companies than before intend to raise their prices in the next three months. The index of price expectations fell in February for the fifth time in a row to 29.1 points, as the Munich-based economic researchers announced on Wednesday.

The bad news for consumers is that a large number of retailers are still planning price increases. In the food and beverage sector, for example, it is still more than three quarters (77.2 balance points), according to the Ifo survey. According to the survey, the majority of tour operators (63.2) and restaurateurs (52.7) also intend to further increase the price of their services, even though the index in these two sectors has also fallen.

To a large extent the wave of the price increases on the building had died down against it. According to the report, in the main construction sector, on average the fewest companies want to pass on increased purchase prices to their customers, with the index falling to 18.7 points, the lowest value since April 2021. "Companies have already passed on a large part of the increased costs to their customers, while at the same time demand is weakening in almost all sectors of the economy," summed up Ifo's head of economic activity, Timo Wollmershäuser. "This should reduce inflationary pressure in the coming months."

Real wage losses in Germany last year were not as severe as previously indicated because of the corrected inflation rate. Gross monthly earnings of employees, including special payments, increased by 3.5 percent, but consumer prices rose much more strongly at 6.9 percent. Thus, real wages fell at a record pace of 3.1 percent and for the third year in a row, as reported by the Federal Statistical Office on Wednesday. An earlier estimate had even shown a minus of 4.1 percent, but has now been corrected significantly downward.

This became necessary because the inflation rate for the past year was recalculated. The basket of goods used to determine prices was changed to the consumption patterns from 2020, previously 2015 served as the basis. As a result, the inflation rate was corrected significantly downward - namely from 7.9 to 6.9 percent, because energy, which has recently become much more expensive, has less weight in the new basket of goods.

"As before, this is the highest increase in nominal wages accompanied by the strongest real wage loss for employees measured in Germany since the start of the time series in 2008," the statisticians emphasized. While in 2020 the increased use of short-time work due to the Corona pandemic in particular had contributed to the negative nominal and real wage development, in 2021 and 2022 high inflation eroded the nominal wage increase. Most recently, the trend was also negative: In the fourth quarter of 2022, real wages fell by 3.7 percent.