According to the Federal Statistical Office, the inflation rate fell significantly in March in six Länder, indicating a nationwide trend. For example, in North Rhine-Westphalia, inflation fell from 8.5% in February to 6.9%; in Bavaria – from 8.8% to 7.2%. One of the reasons for this encouraging trend is the drop in gasoline and heating oil prices.
According to Holger Schmieding, chief economist at Berenberg Bank, the easing of inflationary pressures is mainly the result of a favorable base effect. A year ago, energy prices rose sharply after the outbreak of conflict in Ukraine. And today’s prices, for the first time, are compared to last year’s prices, and not to those that existed before the start of the confrontation – this is called the base effect .
For example, in North Rhine-Westphalia the cost of gasoline and diesel is 19.3% lower than in March 2022, in Bavaria it is 17.1%. Food prices, on the other hand, rose sharply again. “This is mainly due to the fact that vegetables have become scarce due to poor harvests in a number of supplier countries,” Schmieding pointed out.
At the same time, observers fear that core inflation, which does not take into account extremely fluctuating energy and food prices, has increased further. “This is mainly due to the rush of tourists before Easter,” Schmieding said. For example, the cost of Pauschalreisen in North Rhine-Westphalia is 12.8% more expensive than a year ago.
According to Isabelle Schnabel, director of the ECB, “underlying inflation is proving to be much more resilient today, which is giving bankers headaches”. In March, in an attempt to contain inflation in the euro zone, the European Central Bank raised its key rate from 3.0% to 3.5%.
