Germany’s Consumer Prices Drop, Reflecting Easing Inflation

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Preliminary Figures Show Decline

Recent preliminary data from the Federal Statistical Office of Germany indicates a decline in consumer prices for November, surpassing initial expectations. According to the figures released on Wednesday, the inflation rate in Germany for November 2023 is anticipated to be +3.2%, marking the lowest level since June 2021 (+2.4%). The measurement of inflation is based on the change in the consumer price index (CPI) compared with the same month in the previous year.

Monthly Decline and Core Inflation

The statistical office’s insights reveal an expected decline of consumer prices by 0.4% in November 2023 compared to October 2023. Excluding food and energy, often termed core inflation, the anticipated rate is +3.8%. A significant contributor to the decrease in inflation is noted as the year-on-year drop in energy prices, down by 4.5%, with a base effect from the elevated energy price levels in the previous year. Additionally, food prices have not risen as sharply in November 2023 (+5.5%) as in preceding months.

Economic Challenges in Germany

As Germany faces economic challenges, economist and analyst Osama Rizvi sheds light on contributing factors shaping the nation’s financial trajectory. He emphasizes the setback in the residential construction sector, with a notable 22.2% of companies canceling projects in October—a record increase since 1991. Global macroeconomic pressures, rising debt levels, and tightened lending standards are identified as challenges impacting growth, potentially leading to income pressure for consumers in the coming year.

Concerns in Construction and Material Scarcity

The declining trend in new orders for constructions adds to concerns, with a notable fall from September’s 46.6% to 48.7% in October, marking a substantial year-over-year drop of 166%. Given the construction sector’s significant contribution to Germany’s GDP and employment, this downturn has broader implications. Rizvi highlights a 40% increase in raw material prices since pre-Covid times and 10 interest rate hikes by the European Central Bank, contributing to soaring inflation and eroding consumer purchasing power.

Budget Crisis and OECD Warning

Germany also faces a looming budget crisis, with the Organisation for Economic Co-operation and Development (OECD) expressing concern about planned spending in the billions of euros. A reduced investment and spending scenario in Germany could potentially have cascading effects on the European Union’s economy, according to the OECD’s Robert Grundke. The structural weaknesses in the German economy, exemplified by real estate valuations and stalled infrastructure projects, pose challenges that need careful navigation.

Stay updated for further insights as the situation evolves.

SOURCE: Ref Image from Expatrio

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