Germany to release inflation data

Germany’s central statistics authority is due to release consumer price index (CPI) inflation data for the month of January today.

The CPI basket includes average prices for a series of consumer goods and services, including food, rental, clothing, electricity, transportation and motor fuel. In December, CPI data showed a 3.7% year on year increase, while monthly inflation shrank to a mere 0.1%. This is a significant improvement, given that inflation in Germany averaged 5.9% in 2023 and 6.9% in 2022.

The trend is similar across Europe. In December, year on year inflation in France was equally at 3.7%, while overall Eurozone inflation was 2.9%. However, while inflation is expected to continue to gradually taper off in 2024, recent economic data suggests that inflation is currently on the rise again, driven mainly by rising food and energy costs. This is the result of the ongoing war in Ukraine, instability in the Middle East, and lasting repercussions from the pandemic.

However, even with declining inflation, Germany’s economy is expected to struggle in 2024. According to the IMF, Germany is the only G7 economy that shrank in 2023 and it is expected to only grow by 0.9% in 2024. Germany’s budget is currently in disarray after the Constitutional Court threw out the government’s spending plans, as Germany’s constitution effectively prohibits the government from running a deficit.

In the near term, German Chancellor Olaf Scholz will likely continue to struggle with discontent, as approval ratings for his coalition government have dropped to 30% and protests against cuts in government spending continue. Meanwhile, public support for the country’s far-right is rising. EU parliamentary elections and district votes in half of Germany’s states, both held on June 9, will be a litmus test for the government’s future.