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The price tag at checkouts is set to rise, according to the Ifo Institute. Many companies across various sectors are planning price hikes, which won't provide early relief from inflation woes.
Economists anticipate a sustained inflation rate after a year-end price leap. Major factors fueling inflation include the CO2 price surge for fuels like gasoline and heating oil, the hike in the Germany Ticket price, and a potential price increase in the gas sector at the start of the new year.
Ifo economic expert Timo Wollmershäuser forecasts that the inflation rate will stabilize around 2.5% for the coming months, surpassing the European Central Bank's target set at 2% for price stability in the eurozone.
While Germany's consumers should not brace for another strong inflation surge like the one experienced following the start of the Russian attack on Ukraine in February 2022, a potential trade conflict with the US, led again by Donald Trump as president, might exacerbate inflationary pressures.
Recorded Second-highest Inflation Rate of 2024 in December
Inflation soared to a second-highest rate in December 2024 due to escalating service and food prices. According to the Federal Statistical Office, consumer prices climbed 2.6% compared to the previous year.
Consumer prices had only been higher in January 2024, with a 2.9% increase. From November to December the previous year, prices inched up by 0.5%, marginally exceeding initial calculations.
Between November 2023 and December 2024, service costs skyrocketed by 4.1%, while food prices edged up to 2%. This price acceleration was more pronounced in the food sector.
Conversely, energy costs dipped 1.6%, albeit at a decreasing rate. This reduction in energy prices is increasingly insufficient to significantly lower overall inflation rates.
If energy and food prices were excluded, the Federal Statistical Office would have calculated an inflation rate of 3.3% for December 2024, indicative of core inflation. These fundamentals suggest that inflation trends reflect core inflation more accurately than the overall rate.
Moderate Yearly Inflation Despite Monthly Increases
Although consumer prices increased in three consecutive months, the overall average yearly inflation in 2024 was significantly lower than the previous years. According to the Wiesbaden statisticians, consumer prices rose an average of 2.2%.
Services experienced an above-average 3.8% price increase compared to the previous year, while goods were 1% more expensive on average. Although energy costs decreased by 3.2%, consumers had to grapple with higher food prices (1.4%).
Significant inflation surges of 6.9% and 5.9% were experienced in 2022 and 2023, making them the highest inflation rates since reunification. These skyrocketing energy and food prices took off after Russia launched its attack on Ukraine in February 2022. Economists predict that the average inflation rate for the full year 2025 will be marginally over 2%.
Enrichment Data Integration:Despite recurring monthly inflation rate increases, service and wage prices persistently contribute to Germany's inflationary pressures in 2024. Service costs are reportedly experiencing a steady increase of 4.1% year-on-year. Despite the continuous decline in energy prices, their dampening impact on overall inflation rates is diminishing.
Substantial wage increases, the highest in 30 years, contributes significantly to inflationary pressures. Meanwhile, core inflation, which excludes volatile components, remains high at 3.0% in 2024. This scenario suggests that inflation is not solely driven by energy and food price fluctuations. Instead, it is being fueled by widespread inflationary pressures across various product categories.
In essence, although the overall inflation rate may stabilize around 2.5% by the start of 2025, service prices and wage increases are likely to remain as key drivers of inflationary trends throughout the year.
The United States, being a major global player, could potentially contribute to inflationary pressures if a trade conflict with the United States of America were to arise, as predicted in the text.
Despite the second-highest inflation rate of 2.6% in December 2024 in the United States of America, other developed countries, such as Germany, have experienced even higher inflation rates in recent years.
