Producer prices can give an early indication of consumer price developments.
(Photo: Babor)
Berlin German producers are asking less and less money for their goods. Producer prices of industrial products have fallen for the fourth straight month. In January they fell by one percent compared to the previous month, as the Federal Statistical Office announced on Friday.
In relation to the same month last year, producer prices rose by 17.8 percent in December. But the comparison with the level before the Russian attack on Ukraine is now less meaningful because there have been huge price shifts since the outbreak of the war.
Producer prices are arguably the most important precursor to inflation. In the statistics, the prices for raw materials and industrial products are listed from the factory gate – even before the products are further processed or sold. “We also expect rates to continue to fall over the course of the year,” said Alexander Kriwoluzky, head of macroeconomics at the German Institute for Economic Research (DIW). That is “very encouraging”.
Producer price developments suggest that recent developments in inflation are likely to continue. In October, consumer price increases of 10.4 percent compared to the same month last year reached their highest level in reunified Germany. The inflation rate then fell and only rose again slightly in January to an estimated 8.7 percent.
The most important factor for the decline in producer prices in January was again the easing on the energy markets. According to figures from the Federal Statistical Office, energy prices fell by five percent in December compared to the previous month. If you exclude energy, the producer prices even increased slightly in January with a plus of 1.4 percent.
Electricity and oil are getting cheaper
While energy prices have fallen across the board in recent months, the recent decline can be attributed primarily to one good: electricity. According to the statistics office, the prices for electricity fell by 15.5 percent across all customer groups in January compared to the previous month.
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The prices for heating oil also fell by 1.4 percent. Large industrial companies that buy electricity and oil directly benefit from this in particular. So there is a double relief: the economy is under less pressure and some companies will lower their prices, which also benefits the end customer. Other energy sources, on the other hand, became more expensive, natural gas by 0.9 percent and fuel by 1.7 percent.
However, the results are likely to be revised downwards in the near future. The electricity and gas price brake will apply from March. In addition to consumers, many traders will then also receive credits on their energy bills. These should also be paid out retrospectively for January and will then also influence the producer price statistics again.
Leading indicators, above all producer prices, give the federal government hope that inflation will ease further. In its latest economic forecast, it has reduced its inflation forecast for 2023 to six percent. In the autumn projection, she had assumed seven percent. A decline in inflation to 2.8 percent is now expected for 2024.
>> Read here: German inflation rises again in January – prices climb by 8.7 percent compared to the previous year
The easing of prices could lead to better economic development overall. The Federal Government is no longer assuming a recession in Germany for the current year.
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