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Germany: Inflation drops to lowest since Ukraine invasion

September 28, 2023

Inflation in Germany has slowed significantly, falling to its lowest rate — 4.5%. It's the first time inflation had dipped below 5% since Russia launched its full-scale invasion of Ukraine

https://p.dw.com/p/4WvKR
A woman stands in front of a refrigerated shelf in a discount store
Food prices are still rising rapidly, despite a fall in inflation across other areasImage: Frank Hoermann/SVEN SIMON/IMAGO

Data released on Thursday showed that German inflation slowed in September to the lowest level since the outbreak of the Ukraine war.

The drop offers a glimmer of hope for Europe's top economy as it struggles to emerge from a recession.

How the numbers look

Inflation in Germany fell to 4.5% in September, down from 6.1% in August.

The rate was at 4.3% in February before the Russian attack sent energy and food prices spiraling around the world.

German industry, which was particularly reliant on cheap Russian oil and gas, was particularly hard hit.

Consumer prices rose by  0.3% in September according to the data from Germany's Federal Statistics Office, Destatis, thanks partly to slower energy price increases.

Household energy and fuel prices were up by 1% compared with September 2022. That increase was relatively modest compared with the rise in food prices year-on-year, up 7.5% compared with September last year.

Interest rate pause more likely

The news is likely to bolster the case for a pause in the European Central Bank's policy of aggressively raising interest rates to counter inflation.

'Uncertainty' stalls German economy

The bank's monetary policymakers are set to meet next in October when they will consider any change.

"The abrupt drop in inflation is an important signal for the success of the fight against inflation," said Fritzi Koehler-Geib, chief economist at public lender KfW.

"This can help to continually weaken price increases in the coming months as consumers and companies adjust their inflation expectations downward under the impression of the positive news."

In less positive news, an updated joint forecast from leading economic institutes released Thursday highlighted the challenges to German industry.

They now predict Europe's largest economy will shrink by 0.6% across the whole of 2023, sharply lower than earlier predictions.

rc/jcg (AFP, dpa)