9-Euro ticket depresses German inflation

Fri 12th Aug, 2022

Photo by Sangga Rima Roman SeliaFuel discounts and nine-euro tickets caused German inflation to fall for the second month in a row in July. Goods and services cost an average of 7.5 percent more than a year earlier, the Federal Statistical Office said Wednesday, confirming an earlier estimate.

In May, the inflation rate had turned out at 7.9 percent, the highest since the winter of 1973/74, before falling to 7.6 percent in June due to government relief.

However, experts warn of rising inflationary pressure in the fall, when not only the fuel rebate and nine-euro ticket expire, but the gas levy is also imposed from October. "This represents a massive cost boost for citizens," said Commerzbank chief economist Jörg Krämer.

For an average household with an annual consumption of 20,000 kilowatt hours, he said, additional costs of between 300 and 1,000 euros per year can be expected. "In an extreme case, the end of the nine-euro ticket and the fuel discount, the usual gas price increases and the gas levy will push up the German inflation rate by about three percentage points," Krämer said. "The inflation rate would then be in double digits in the fourth quarter."

Energy became 35.5 percent more expensive in July because of the Russian war against Ukraine, and thus remains the number one price driver. However, the increase in June had been even higher at 38.0 percent.

The price increase for electricity amounted to 18.1 percent and weakened primarily as a result of the abolition of the EEG surcharge (June: +22.0 percent). Fuel prices rose by only 23.0 percent (June: +33.2 percent, May: +41.0 percent), also as a result of the fuel discount. Prices for light heating oil more than doubled within a year.

Prices for both local rail tickets (-43.9 percent) and combined tickets for rail, bus and the like (-63.0 percent) fell sharply due to the nine-euro ticket. Food, on the other hand, cost 14.8 percent more than in July 2021.

"This is the fifth month in a row that price inflation has increased," the statisticians stressed. Higher inflation rates reduce the purchasing power of consumers, which means they can afford less for one euro.

In particular, jumps in energy prices as a result of the Ukraine war and rising food prices have been fueling inflation in Europe's largest economy for some time. Compared with June, consumer prices rose by 0.9 percent in July. Again, the agency confirmed an initial estimate.

Edible fats and oils (+44.2 percent) and dairy products and eggs (+24.2 percent) became considerably more expensive. Meat and meat products cost 18.3 percent more.

The European Central Bank (ECB) raised its key interest rate in July for the first time since 2011 in view of record high inflation in the monetary union and intends to follow suit in September. This will increase the cost of borrowing for consumers and companies alike, which is likely to have a further negative impact on consumption and investment. This, in turn, could have a negative impact on the already weakening economy.

Photo by Sangga Rima Roman Selia

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