Inflation is rising in Germany's major states

Inflation rose in four of six key German states in August, according to official data released yesterday, casting doubt on whether the national downward trend will continue, according to Reuters.

In North Rhine-Westphalia, Germany's most populous state, inflation rose to 5.9% in August from 5.8% the previous month. In Baden-Wuerttemberg it reached 7%, from 6.8%, in Brandenburg - to 7.1%, from 6.7%, and in Saxony - to 6.8%, from 6.7%. Data from Bavaria and Hesse showed that inflation eased slightly to 5.9% (from 6.1%) and 6% (from 6.1%) respectively.

Overall, German inflation slowed to 6.4% this month from 6.5% in July. Analysts had expected inflation to drop to 6.3% in August.

Bastian Hepperle, economist at Hauck Aufhaeuser Lampe Privatbank, said, according to Reuters, that inflation in Germany is expected to slow further, despite the "mixed picture" in August. Hepperle stated: "The sharp decline in producer and import prices provides reason for optimism that the inflationary impulse will continue to moderate in the coming months."

Price pressures have eased in Europe's biggest economy since last year, when the energy crisis sparked by the Ukraine war pushed inflation to a multi-decade high of 11.6 percent in October.

However, inflation in Germany remains well above the European Central Bank's (ECB) target of 2%, and core inflation, which excludes volatile prices such as food and energy, has been extremely high.

• Olaf Scholz, Germany's Chancellor: "Stimulus measures should not influence inflation"

The German government must take care that the stimulus measures do not influence inflation, Chancellor Olaf Scholz said yesterday, according to Reuters.

Germany's ruling coalition approved corporate tax cuts for the next four years, totaling 32 billion euros, aimed at reviving the growth of Europe's largest economy, including a subsidy to cover 15% of the cost of green investments companies.

Germany recorded zero growth in the period April-June 2023 compared to the first quarter of 2023, data published by the Federal Statistical Office (Destatis) shows, in line with the initial estimate and analysts' expectations. Germany's GDP had registered a decline of 0.4% in the fourth quarter of 2022 and a decrease of 0.1% in the first three months of this year.

Scholz declared, after the presentation of the fiscal measures, that there are indications that an economic recovery is underway, notes Agerpres. An export-dependent economy such as Germany's can only protect itself from the slowdown in the regions it sells to through sustained diversification of its export base.

The measures, which still need to be approved by parliament and the states, are a much watered-down version of the initial plan of Germany's ruling coalition.

The tax cuts, of approximately seven billion euros per year, are modest considering the size of the German economy, of 4,000 billion euros, and analysts and business associations have criticized them as not being enough.

Last month, the IMF warned that Germany will be the only major economy that will contract this year, even if the global economy will also have a weak evolution, in the context of higher interest rates and high inflation.

• Economic stagnation in Germany, due to the slowdown of the global economy

Among the causes of the stagnation of the German economy, in the second quarter of 2023, is the slowdown of the global economy - which led to the decline of the European country's exports, the significant decrease in industrial activity and the reduction of consumer spending, against the background of high inflation and aggressive interest rate increases .

German household consumption registered zero growth in April-June 2023, while government spending rose by 0.1%. Investments increased by 2.1%, while exports decreased by 1.1%, according to official data.

Carsten Brzeski, economist at ING, says: "We continue to see the German economy as caught in the twilight zone between stagnation and recession. The recently published data do not indicate good developments in the economic activity in the coming months".

On an annual basis, Germany's economy contracted by 0.2% in the second quarter of 2023.

In July, the IMF warned that Germany would be the only major economy to shrink this year.