Upward trend

German inflation rises surprisingly sharply

Customers had to pay significantly more for services in particular in October.

(Bild: industrieblick - stock.adobe.com)

Inflation in Germany rose surprisingly sharply in October. Goods and services increased in price by an average of 2.0 percent compared to the same month last year, according to the Federal Statistical Office on Wednesday. Economists surveyed had only expected an inflation rate of 1.8 percent.

In September, it had fallen to its lowest level for around three and a half years at 1.6 percent.

From September to October, the cost of living rose by 0.4 percent. Consumers had to dig deeper into their pockets, particularly for services such as package tours and insurance. These became 4.0% more expensive compared to October 2023.

Energy prices down significantly
Food cost 2.3 percent more. Energy, on the other hand, became 5.5% cheaper. The inflation rate excluding food and energy - often referred to as core inflation - is expected to have risen to 2.9%.

Inflation has increased again noticeably and on a broad basis, said Holger Schmieding, Chief Economist at Berenberg Bank. "For the ECB, the stubborn inflation in the service sector, where wage costs play a major role, is a warning signal," he added. "It should not lower its key interest rates excessively." In view of the slowdown in inflation in the monetary union, the European Central Bank (ECB) has already cut its key interest rate three times this year.

Inflation will rise again
In its latest monthly report, the Bundesbank predicts higher inflation. "The rate of inflation is expected to rise again in the coming months," it emphasized. "The reasons for this include base effects in energy." For example, crude oil prices peaked in September last year and then fell again, which could now drive up inflation.

"A higher inflation rate can also be expected for food - due to the recent rise in commodity prices." Finally, inflation in services is likely to remain at a high level for a while.

Individual sectors will soon be asking customers to pay more
More companies want to ask their customers to pay more in future. The barometer for price expectations rose to 15.9 points in October, up from 14.1 points in September, according to the Ifo Institute's manager survey. According to the survey, industrial companies, business-related service providers and retailers in particular want to demand more money.

"In the coming months, the inflation rate is likely to pick up again somewhat and reach the European Central Bank's two percent mark," said Ifo economic expert Sascha Möhrle.