German inflation drops sharply to 4.5% in September

Inflation in Germany slowed significantly to 4.5 per cent in September from more than 6 per cent in the previous month, according to preliminary figures released by the Federal Statistical Office (Destatis).

Inflation in Europe's largest economy has not been as low since the start of the Russia-Ukraine war in February 2022, reports Xinhua news agency.

According to Destatis, the decline was due to a base effect from the end of the government's anti-inflation measures, such as the fuel discount and the subsidized nationwide public transport ticket, in September 2022.

As a result, the price increase in the services sector slowed to 4 per cent and the increase in energy prices was 1 per cent.

Prices for food, on the other hand, continued to rise faster than the overall inflation rate at 7.5 per cent year-on-year.

Meanwhile, consumer sentiment in Germany is not improving.

The market research institute GfK warned that "private consumption will not be able to positively contribute to overall economic development this year."

The Halle Institute for Economic Research (IWH) and some other leading economic institutes in the country predicted on Thursday that the German economy will shrink by 0.6 per cent in 2023.

In their previous forecast, the institutes had still projected slight growth.

"The most important reason for this revision is that industry and private consumption are recovering more slowly than we expected in spring," Oliver Holtemoeller, vice president of IWH, said in a statement.

The German inflation rate is expected to average 6.1 per cent in 2023, before declining to 2.6 per cent next year, according to the joint economic forecast, which the leading institutes publish twice a year.

To push inflation back below its 2 per cent target, the European Central Bank (ECB) has gradually raised its key interest rate to 4.5 per cent, exceeding the level seen during the 2008 financial crisis.

Inflation is "still expected to remain too high for too long", ECB President Christine Lagarde said earlier this week.

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