What is getting more expensive?: Energy prices drive inflation

The German energy price surge has driven inflation higher, with the cost of oil continuing to climb and pushing consumer prices upward. Recent data shows that the North Sea crude oil benchmark, Brent, reached nearly $90 per barrel during trading on Tuesday, marking another increase after fluctuating lower levels earlier in the week. Motorists in Germany have already paid record prices for fuel, according to surveys by the Automobile Club ADAC, during this summer travel season. For many consumers, the summer has become significantly more expensive. Inflation rates remained above two percent in both Germany and the eurozone over the past four months. In Germany, the rate stood at 2.9% in April, 2.6% in May, 2.3% in June, and 2.8% in July. The temporary drop in May and June was attributed to government subsidies for fuel, which artificially lowered the rate through tax reductions. Across the eurozone, inflation was 3.0% in April, 3.2% in May, 2.8% in June, and 2.9% in July. Since the end of these subsidies in late June, the difference between the two regions has narrowed considerably. Energy costs remain the primary driver of inflation. In the eurozone, energy prices rose by 10.0% year-on-year as of July, the highest increase among all subcategories. Service sector inflation also climbed above average, reaching 3.3%. This includes increased pricing in restaurants and hotels, where demand for food and accommodation has risen sharply compared to last year. Insurance companies have also raised premiums, contributing to overall inflation. Particularly notable is the sharp rise in costs related to elder care services. In May, service sector inflation briefly hit 3.5%, raising concerns among economists about potential second-round effects. These occur when rising wages due to high energy prices lead to further inflation in the service sector. However, the decline in service inflation in June was partly explained by seasonal factors such as fluctuations in travel-related prices. Core inflation in the eurozone rose slightly in July, excluding volatile energy and food prices. It increased from 2.4% to 2.5%, primarily due to faster increases in the prices of low-level industrial goods. Commerzbank economist Vincent Stamer noted that this could signal the beginning of a trend toward higher core inflation. He predicted that as the conflict in the Middle East continues to disrupt oil and product transportation, businesses will likely pass on their increased energy costs to customers. “We expect that prices beyond energy will start to rise more quickly throughout the year,” he stated. Economist Friedrich Heinemann from the ZEW research center in Mannheim pointed to reports from companies like BASF, suggesting that some firms have successfully passed on higher energy costs to their customers. BASF cited a significant sales increase within its group, attributing it to a 7.3% volume growth and a 11.5% price increase. Unlike the previous inflation wave in early 2022/2023, when both energy and food prices surged, current food price inflation has remained relatively low. There were brief signs that higher fertilizer costs might affect raw food items, but this effect has not been widespread. Food prices have thus far shown less volatility than other sectors.