Commerzbank’s Dr. Ralph Solveen analyzes German inflation after the July national Consumer Price Index (CPI) rose from 2.3% to 2.8%, driven mainly by higher energy prices linked to conflict in the Persian Gulf and the end of fuel tax rebates. Core inflation excluding energy and food eased slightly, and the short-term path of German prices is seen as heavily dependent on Middle East developments.

Energy shock lifts German CPI again

"As was to be expected given the sharp rise in energy prices, inflation in Germany picked up noticeably again in July. Consumer prices (national definition) were 2.8% higher than a year earlier. In June, the inflation rate had fallen sharply to 2.3%."

"For other goods and services, inflation actually eased slightly. The core inflation rate, excluding energy and food prices, fell slightly from 2.5% to 2.4%."

"Among the subcategories of the core inflation rate, the rise in prices for services slowed slightly once again, falling back to just under 3% in July. The inflation rate for goods (excluding energy and food) was unchanged at 1.6%."

"The short-term trend in the inflation rate clearly depends heavily on further developments in the Middle East. As long as the current pattern of alternating good and bad news persists, oil prices – and thus energy prices for households – are likely to experience significant fluctuations. Once hostilities come to an end, the inflation rate is expected to fall back toward 2% as energy prices drop again."

"At the same time, the core inflation rate is likely to decline only slowly. While labor costs have been rising more slowly for some time now, which is putting a brake on service prices, companies are likely to increasingly pass on their higher energy costs to their customers."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)