Inflation in Germany: consumer price index at a glance

Germany's annual inflation rate falls to 1.9% in August 2024: What it means for the economy 

The annual inflation rate in Germany was confirmed at 1.9% in August 2024, easing from 2.3% in the previous month and in line with preliminary estimates. This was the lowest rate of inflation since March 2021, as services inflation remained stable (at 3.9%), while energy costs fell much faster (-5.1% compared to -1.7% in July), mainly in fuels (-6.9%) and household energy (-3.8%). Meanwhile, food prices rose for the fifth consecutive month (1.5% compared to 1.3%), due to higher costs for edible fats and oils, as well as sugar, jam, honey and other confectionery. On a monthly basis, the CPI fell by 0.1%, after rising by 0.3% in the previous month. In addition, the EU-harmonised CPI fell from 2.6% year-on-year to 2.0%, while the month-on-month rate fell by 0.2% after rising by 0.5% in July.

The main reasons for the slowdown in inflation

1. Energy costs have fallen significantly:

The most significant factor in the slowdown in inflation was the sharp fall in energy prices, which fell by 5.1% in August, compared with a smaller decline of 1.7% in July. Energy costs, which include household energy and fuel prices, were a major contributor to inflation last year but appear to be moderating.

Fuel prices are down 6.9%, offering some relief to consumers at the pump, while household energy costs are down 3.8%, providing some relief from the high electricity bills that have weighed on household budgets in recent months.

2. Services inflation remains stable:

Services inflation remained unchanged at 3.9% in August, indicating continued cost pressures in this sector. This stability suggests that while energy prices are easing, other inflation components such as wages and labour-intensive services continue to contribute to overall price increases. Services that include healthcare, transport and hospitality have shown resilience and steady demand, keeping prices in this segment high and pushing up CPI figures.

3. Food prices rise for the fifth consecutive month:

 On the other hand, food prices continued to rise, up 1.5% in August from 1.3% in July. This is the fifth consecutive month of rising food prices, mainly due to higher costs of edible fats and oils, as well as sugar, jam, honey and other confectionery. Ongoing price increases in the food sector are particularly evident in coffee, sugar, cocoa, milk and orange juice.

Monthly inflation: slight decline

On a monthly basis, the consumer price index (CPI) fell to -0.1% in August, after rising by 0.3% in July. This decrease compared with the previous month indicates that price pressures are gradually diminishing. The fall in energy prices played a significant role in this monthly decrease, although rising food prices weakened the overall effect.

EU-harmonised inflation falls

In addition to the national CPI data, the EU harmonised CPI, which allows for better comparison between EU countries, also showed a decline. The EU harmonised inflation rate fell to 2.0% in August from 2.6% in July on a year on year basis. On a monthly basis, the harmonised CPI fell by 0.2% after rising by 0.5% in July.

The EU-harmonised CPI is particularly important for assessing inflation in Germany in the context of the eurozone as a whole, as the European Central Bank (ECB) closely monitors these data when making monetary policy decisions. The weakening of harmonised inflation in Germany is consistent with the ECB's overarching goal of lowering inflation across the eurozone, although the rate of inflation still remains above the ECB's 2% target.

What does this mean for the German economy?

1. Relief for consumers and businesses:

   - The decline in inflation, particularly in energy costs, will provide some relief for both consumers and businesses. Lower energy and fuel costs will help ease the pressure on household budgets and reduce operating costs for businesses, particularly in energy-intensive sectors such as manufacturing and transportation.

   Although inflation is still present, the significant decline in energy prices could help to stabilise consumer spending and consumer confidence, which has been dampened in recent months by rising costs. If consumers regain purchasing power, this could support overall economic activity in the coming months.

2. Challenges in the food sector:

   - Despite the slowdown in inflation, rising food prices remain a problem. Continued price increases for staple foods could lead to increased financial stress for consumers, especially for low- and middle-income households. This could potentially offset the benefits of lower energy costs, as food accounts for a significant share of household spending.

   The continued rise in food prices could also continue to contribute to inflationary pressures in the services sector, as higher costs for raw materials and inputs affect the entire supply chain.

DAX Technical Analysis

The DAX rises above 19,450 to a new all-time high in the last week of trading. The RSI is just shy of overbought levels and could support further gains while remaining out of the overbought area. A retest of 19,495 would push the price above the psychological 19,500 mark, and if it remains above it, it could serve as a support level. If we backtrack the chart to mid-2022 and extend the upward trend line, it extends to a level around 20,050, which represents the next potential point of resistance. This is also above the psychological level of 20,000, which would have to be targeted first.

On the other hand, the immediate support is at 19,050, which corresponds to the daily trading high before the large breakout candle. If a pullback were to occur, this would be a level to watch. If there were another breakthrough, the September low at 18,200 would be another critical level.