Refueling and heating have recently become noticeably cheaper. Many economists assume that the downward trend in consumer prices will continue for the time being.
Wiesbaden (dpa) - Good news for consumers: The massive decline in energy prices in the Corona crisis significantly dampens inflation in Germany. Price inflation has been weakening for three months now.
Inflation dropped to its lowest level in almost four years in May: consumer prices were 0.6 percent above the level of the previous month, as the Federal Statistical Office confirmed on Tuesday. Such a low value was last determined in September 2016. From April to May 2020, consumer prices fell by 0.1 percent.
And inflation could come even closer to the zero mark: If the Federal Government recently decided to lower the value added tax completely to consumers, according to calculations by the Wiesbaden statisticians, this would cause a decline in consumer prices by a purely arithmetical 1.6 percent.
No relief with apartment rents
However, the experts also point out that the price development is also determined by many other effects. In addition, apartment rents, for example, which make up around a fifth of consumer spending by private households, are not benefiting from the tax reduction.
According to the draft law of the CDU / CSU and SPD, a reduced VAT should ensure that many purchases in the supermarket, furniture store or electronics store will be cheaper for half a year. The tax rate is to be reduced from 19 to 16 percent from July 1 to December 31. The reduced rate, which applies to many foods, for example, is reduced from 7 to 5 percent. The law is now to be passed in an emergency.
In May, household energy and petrol fell by a total of 8.5 percent compared to the same month last year, according to the Federal Office. The crude oil price has been under pressure for months. With the economic stagnation in many countries as a result of the corona pandemic, demand for the raw material fell, and the fall in prices worsened.
Heating oil up to 30.5 percent cheaper than last year
For example, heating oil in Germany was 30.5 percent cheaper in May than a year ago, and fuel prices fell by 20.7 percent. Food, on the other hand, rose above average by 4.5 percent.
The inflation rate is an important indicator for the monetary policy of the European Central Bank (ECB). The central bank is aiming for an annual inflation rate of just under 2.0 percent for the entire euro area with its 19 countries - far enough from the zero mark. Because permanently low or falling prices across the board could entice companies and consumers to postpone investments. That can slow down the economy.
In the euro area, inflation slid towards the zero line in May, according to the latest data from the Eurostat statistics office: consumer prices were only 0.1 percent higher than a year earlier. This is the lowest inflation rate since June 2016.
Despite billions of dollars in bailouts from governments and central banks, economists do not expect anything to change quickly. One of their arguments: the corona crisis should dampen wage developments and consumer demand. The ECB forecasts a drastic economic downturn in the euro zone as a result of the Corona crisis and an inflation rate of just 0.3 percent for the whole of 2020.
Eurostat on inflation in the euro area
ECB explanations on inflation
ECB video on inflation
ECB key interest rate series
