Germany: Underlying inflation stubbornly high

The fall of the German inflation rate below the 2% mark has proofed to be only temporary. According to the preliminary estimate of the Federal Statistical Office, it rose again in October from 1.6% to 2.0%. One contributing factor was the rising year-on-year rates for energy and food prices. But even the core inflation rate, which excludes these two often highly volatile subcomponents, rose in October from 2.7% to 2.9% after having fallen slightly in the previous months.

The high core inflation rate continues to primarily follow the ongoing strong rise in service prices. The year-on-year comparison here has been marginally below 4% since the spring; in October it increased slightly to 4.0%. The decisive factor for the sharp rise in service prices is likely to be the noticeable increase in wage costs. Since wages have risen significantly until recently, the only factor to slow prices is the weak economy, which will gradually push down the services inflation.

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