German headline inflation rate eases in August, likely to pick up in long-term

German inflation rate dropped more strongly than anticipated in August. On a year-on-year basis, the headline inflation slowed to 1.4 percent in August from July’s 1.7 percent, owing to slower rise in energy prices. Energy prices rose just 0.6 percent year-on-year. Meanwhile, the core inflation rate, which excludes food and energy, also dropped in the month to 1.4 percent from 1.6 percent.

The easing in core inflation is not expected to mark the end of the trend of increasing underlying price pressure seen in the past few months. Since the turn of the year 2018/2019, core inflation – adjusted for the always quite volatile prices for package tours – has accelerated markedly. In recent years, there have been repeated signs of a rising core inflation rate that have not been long-lasting.

“In the longer term, however, underlying inflation should indeed tend to pick up. Despite the current economic soft patch, employment enjoys a boom and wages - by German standards - are continuing rising substantially. Sooner or later, companies will hardly be able to avoid passing on at least some of the rising (wage) costs to consumers”, said Commerzbank in a research report.