Prices in germany rose only slowly in 2019

In Germany, prices rose more slowly in 2019 than they have been in years. The inflation rate was 1.4 percent. Economists are concerned about what should please consumers.

The rise in prices in Germany slowed down in the past year. The annual average inflation rate was 1.4 percent, its lowest level in three years. According to the Federal Statistical Office, falling prices for heating oil and fuels slowed the rise in consumer prices. Food prices also rose only moderately overall, but meat cost significantly more.

Energy went up by 1.4 percent overall; a year earlier, prices had risen by 4.6 percent.

Only slight price increase expected in 2020

Compared to the previous year, the rise in the rate of inflation weakened significantly: For 2018, the statisticians had calculated an annual inflation rate of 1.8 percent.

Economists expect only a slight increase in prices in 2020. Most experts assume that the rate of inflation will remain below the two percent mark both this year and next. The Ifo Institute expects an average inflation rate of 1.5 percent for 2020, which is expected to climb to 1.6 percent in 2021.

The goal is an inflation rate of two percent

Since the beginning of 2014, wages and salaries have risen continuously faster than consumer prices. Consumers should be pleased. But economists are worried that Germany will continue to fall short of its self-imposed target of an inflation rate of two percent.

After all, prices that are permanently low or falling across the board could tempt companies and consumers to postpone investments. Anyone who anticipates that prices will continue to fall will spend more time with larger purchases – and will not spend their money for the time being. That would paralyze the economy, say economists.

Like lubricants, on the other hand, moderately rising prices should have an effect: Those who assume that many things will soon be more expensive put their money into circulation and would rather buy immediately than pay higher prices later.

ECB is discussing more flexibility

This is why many central banks around the world aim to keep the inflation rate at around two percent. The European Central Bank, for example, has set a course that price increases should be "below, but close to two percent".

However, under the ECB President Christine Lagarde, who has been in office since November, a discussion has started on whether it might not make more sense to set a somewhat broader corridor as the inflation target.

Savers fear low interest rates

In order to keep the inflation rate at a target level, the central bank can raise or lower the key interest rate. The key rate is currently at zero percent. Savers who rely on current and fixed-term accounts with very low interest rates are losing money despite the low inflation.

According to calculations by the Commerzbank subsidiary Comdirect, the real interest rate – i.e. the interest on savings deposits after deducting the inflation rate – was minus 1.29 percent in 2019. Accordingly, savers in Germany lost 30.3 billion euros last year because of low-interest deposits.

According to this calculation, savers have lost 134.6 billion euros since the end of 2010 due to low interest rates and inflation – that is 1638 euros per German citizen.

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