German Inflation Slows Slightly in August, but Remains Elevated
Headline CPI up 1.9% YoY, Flat MoM
Germany's consumer prices rose 1.9% year-over-year in August, unchanged from the preliminary estimate and marking the fourth consecutive month of deceleration.
On a monthly basis, CPI was flat in August, after a 0.3% increase in July. This is the first time CPI has remained unchanged month-over-month since January.
Food and Energy Prices Continue to Drive Inflation
The slowdown in headline inflation was largely due to a moderation in food and energy prices. Food prices rose 0.2% month-over-month in August, after a 1.1% increase in July. Energy prices fell 0.2% MoM, after a 5.1% increase in July.
The core CPI, which excludes food and energy, rose 0.3% MoM in August, after a 0.4% increase in July. This suggests that underlying inflationary pressures are still strong.
Inflation to Remain Elevated in Near Term
The Bundesbank expects inflation to remain elevated in the near term due to the ongoing war in Ukraine and supply chain disruptions.
The central bank now forecasts inflation to average 7.2% in 2022, up from its previous forecast of 6.1%. The Bundesbank also expects inflation to remain above the ECB's target of 2% until at least 2024.
Impact on Consumers and Businesses
High inflation is eroding consumer purchasing power and squeezing businesses' profit margins.
Consumers are cutting back on spending, and businesses are passing on higher costs to their customers. This is leading to a slowdown in economic growth.
Government Measures to Address Inflation
The German government has introduced a number of measures to address inflation, including a fuel subsidy and a one-time payment to low-income households.
The government is also working with businesses to reduce supply chain disruptions and lower energy prices.
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