Inflation in Germany falls to 7.4 percent in March

Inflation in Germany falls to 7.4 percent in March

Frankfurt The inflation rate in Germany fell in March. Consumer prices increased by 7.4 percent compared to the same month last year. This was announced by the Federal Statistical Office on Thursday based on a preliminary estimate. The main reason was a significantly lower rise in energy prices.

Economists had previously expected a decline to 7.3 percent. In February, the rate was 8.7 percent. The figures fuel the debate about the future course of the European Central Bank (ECB). In mid-March, it raised the key interest rate in the euro area by half a percentage point to 3.5 percent.

At the same time, central bank head Christine Lagarde left the further course open. Investors have recently adjusted their expectations with regard to further interest rate developments. Unlike a few weeks ago, they are now expecting the first interest rate cuts as early as the beginning of 2024.

The supporters of the easy monetary policy see the fall in headline inflation and the recent turmoil in the banking sector as arguments against further rate hikes. In contrast, supporters of a tight course point to high core inflation. This value, adjusted for energy and food prices, has recently increased further. In the euro area, it reached a new record of 5.6 percent in February.

Roxane Spitznagel, the economist at the US fund company Vanguard, therefore sees no reason to sound the all-clear. “Of course, headline inflation in Germany and the euro area is falling because of lower energy prices,” she says. “However, we assume that core inflation has not yet peaked.”

From their point of view, the prices for services in particular are likely to rise even more. The reason is the stronger wage development. This is reflected more strongly there because the labor factor makes up a larger proportion of the total costs. Typically, services inflation takes longer to change.

Despite the recent turbulence in the financial sector following the bankruptcy of the Silicon Valley Bank, Spitznagel, therefore, expects the ECB to raise interest rates further. From their point of view, the central bank should concentrate on fighting inflation with its interest rate policy. “If there are problems with financial stability, then they have to address them with other tools.”

Jean Harris

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