The fact that producer prices fell so sharply compared to the previous month for the second time in a row comes as a surprise. Inflation momentum appears to be slowing. However, the target rate of two percent for consumer prices remains a pipe dream.
There are increasing signs that the high inflation is abating: German manufacturers lowered their prices for commercial products in November for the second month in a row. Producer prices fell by an average of 3.9 percent on the previous month due to cheaper energy, as reported by the Federal Statistical Office. Economists had only expected minus 2.5 percent. In October, there was a 4.2 percent decline for the first time in two and a half years and at the same time the strongest since the statistics began in 1949.
Compared to the same month of the previous year, the rate of inflation weakened this time to 28.2 percent, after August and September had seen the highest increases since the survey began in 1949 at 45.8 percent each.
“The rise in costs triggered by rising energy prices and the scarcity of primary products is obviously decreasing,” said Commerzbank economist Ralph Solveen. But that doesn’t mean that consumers can count on inflation rates of two percent again. “Because with the already agreed or at least emerging sharp wage increases, the next increase in costs is already imminent,” said Solveen.
At least the inflation dynamic seems to be slowing down significantly, added economist Jens-Oliver Niklasch from Landesbank Baden-Württemberg (LBBW). But in the coming year, it is likely to be significantly more expensive for consumers in many areas. “There is still pressure in the pipeline,” said Niklasch.
The development in energy is decisive for the decline in producer prices. On average, this was 9.6 percent cheaper in November than in the previous month – “mainly caused by the fall in the price of natural gas in distribution and of electricity,” according to the statistics office. Fuels such as petrol became cheaper by 7.5 percent compared to the previous month, and light heating oil by as much as 16.9 percent.
Producer prices are seen as a precursor to the development of the cost of living. If the producers raise or lower their prices, this usually also affects private households, at least in part. In the statistics, the prices are listed from the factory gate – even before the products are further processed or sold. In November, consumer prices were 10.0 percent higher than a year earlier. A noticeable drop into the single digits is expected for December.
Bundesbank President Joachim Nagel does not anticipate rapid success in the European Central Bank’s (ECB) fight against escalating inflation. “It will be some time before inflation gets back to where it belongs, namely at two percent,” Nagel told ntv in an interview. “That means we’re going to go through some tough months,” he added. The ECB has already acted strongly with four rate hikes over the course of the year. “And the rate hikes will continue,” he said. “We’ve already come a long way, but there’s still a lot to do.”