Food prices remain the main driver of inflation in Germany

After months of easing price pressure, Germany’s inflation rate picked up again to 3.7 percent in December 2023, according to preliminary figures published by the Federal Statistical Office (Destatis) on Thursday.

At 4.5 percent, food prices remained the main driver of inflation in Europe’s largest economy, Destatissaid. Meanwhile, energy prices increased by 4.1 percent year-on-year due to a one-off effect from the government taking over consumers’ heating costs a year earlier.

According to the ifo Institute for Economic Research, the share of German companies seeking to raise prices has recently risen again. “The decline in inflation rates is likely to stall for the time being,” ifo expert Timo Wollmershaeuser said at the end of last month.

The normalization of prices is expected to be hampered as COVID-19 and energy crisis relief measures are running out. From January, instead of the reduced value-added tax rate of 7 percent, the regular rate of 19 percent will once again apply at gas stations and restaurants.

Almost two out of three restaurants fear that the tax increase will hit them hard, according to a recent survey by the German Hotel and Restaurant Association (DEHOGA). Nearly 90 percent said they would have to increase prices as a result.

“There is a threat of turnover shortfalls, job losses, business closures and insolvencies in the sector,” warned DEHOGA president Guido Zoellick at the end of last year. The industry has been under pressure since the pandemic. “The companies no longer have any financial leeway.”

The German government, however, said it has already made savings after the failed reallocation of unused COVID-19 relief funds to climate measures. To close the budget gap in 2024, the CO2 price, a levy on pollution from fossil fuels, was raised from 30 to 45 euros (49.5 U.S. dollars) per ton.