German Core CPI Likely To Remain High Amidst Influence of One-off Effects, Bundesbank Says

17 July 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – Core inflation is likely to remain high in Germany over the summer, though inflation data will be distorted by one-off effects, the German Bundesbank said on Monday.

In its latest monthly report, the Bundesbank said that the German economy was likely to have grown slightly in the second quarter of 2023, though growth for the rest of the year might undershoot the central bank’s latest forecasts.

‘In the coming months, the inflation rate in Germany is expected to decrease again’, the report said. Core inflation, however, was ‘expected to remain very high over the summer’. The discontinuation of the fuel discount and nine-euro ticket in September 2022 would ‘have a dampening effect on HICP in September 2023’, according to the Bundesbank, whilst recent upstream price declines were ‘likely to be gradually passed on to consumers’ and lead to a fall in headline figures.

‘Inflation rates in the coming months will also be influenced by special effects’, the Bundesbank predicted.

German economic performance was ‘expected to have increased slightly in the second quarter of 2023’, according to the report, due to the previously sharp decline in private consumption ‘appearing to have stabilised’ and ‘the labour market remaining in good shape, wages rising significantly, and the price increases not intensifying further’.

However, ‘the economic recovery in the rest of the year might be somewhat more hesitant than expected in the June forecast’, the Bundesbank warned. The industrial sector was being ‘hampered by a decrease in foreign demand’, whilst in recent months, ‘increased financing costs dampened domestic investments and continued to significantly impact the demand for construction services.’ Business sentiment in Germany ‘worsened in June, especially in the industrial sector’, the report noted.