### Summary
German producer prices in July saw their first year-on-year decline in over two-and-a-half years, falling 6.0%, due to easing energy price pressures, signaling a potential abatement of inflation in Europe's largest economy.
### Facts
- 📉 German producer prices declined by 6.0% in July compared to the same month last year.
- ⚡ Energy prices sank 19.3% in July on a yearly basis, with electricity prices falling by 30.0%.
- ❌ Excluding energy prices, producer prices in July rose 2.0% compared to the previous year.
- 📉 On a monthly basis, producer prices decreased by 1.1% in July.
- 🔍 Germany's producer price index, a key indicator for inflation, fell to 6.5% in July.
Germany's business activity has seen a sharp decline, leading to concerns of a recession, as the country's Purchasing Managers' Index (PMI) dipped to its lowest level in over three years. This decline in activity is impacting the wider eurozone economy as well, with the region at risk of slipping into recession. This economic downturn is accompanied by a worrying uptick in inflation and slow growth, particularly in Germany.
The US economy is expected to slow in the coming months due to the Federal Reserve's efforts to combat inflation, which may lead to softer consumer spending and sideways movement in the stock market for the rest of the year, according to experts. Additionally, the resumption of student loan payments in October and the American consumer's credit card debt could further dampen consumer spending. Meanwhile, Germany's economy is facing a recession, with falling output and sticky inflation contributing to its contraction this year, making it the only advanced economy to shrink.
German consumer confidence is expected to decrease in September due to persistently high inflation rates and a lack of clear upward or downward trend in the consumption climate.
German inflation beats forecasts, complicating the ECB's task, while US labor data eases and GDP is revised lower, causing the dollar to weaken and the euro to strengthen.
German inflation fell slightly in August, but economists predict that the downward trend will continue in the coming months, with food prices showing above-average growth.
Consumer prices in the eurozone rose 5.3% on average this month compared to last year, with core inflation easing to 5.3%, potentially increasing pressure on the European Central Bank to raise interest rates.
The European Commission has revised down its economic forecast, citing high prices for goods and services as a significant factor, leading to reduced growth projections for the European Union and the eurozone. Germany is expected to experience a downturn, while inflation is projected to exceed the European Central Bank's target. Weak consumption, credit provisions, and natural disasters are also contributing to the loss of momentum in the economy. However, the report highlights the strength of the EU labor market with a low unemployment rate.
Germany's economy is expected to contract by 0.4% in 2023 due to higher inflation, rising interest rates, and weaker consumer spending, making it the worst-affected major country in the eurozone, according to the European Commission. The overall eurozone economy is expected to expand by 0.8% in 2023 and 1.3% in 2024, leading to a potential halt in the European Central Bank's tightening of policy. Inflation in the eurozone is projected to average 5.6% in 2023.
Germany is projected to be the most heavily impacted by the global economic slowdown due to higher interest rates and weaker global trade, according to the Organisation for Economic Co-operation and Development (OECD), with its economy likely to shrink this year alongside Argentina and experience a weaker 2024. The slowdown in China, inflationary pressures, and tightening monetary policy are among the factors affecting Germany's growth. The OECD also warned of persistent inflation pressures in various economies and called for central banks to maintain restrictive interest rates until underlying inflationary pressures subside.
Germany's inflation rate in September slowed to the lowest level since Russia invaded Ukraine, potentially leading the European Central Bank to reconsider its interest rate hikes.
The overall inflation rate in most European countries dropped to its lowest level since before the start of the war in Ukraine, despite climbing oil prices, with consumer prices in the eurozone rising at an annual rate of 4.3 percent in September, down from 5.2 percent in August, according to the European Commission's statistical arm.
The sharp decline in inflation in Europe in September raises hopes for relief from high consumer costs, but concerns remain regarding higher oil prices and the ECB's ability to achieve its 2% inflation target.
The September CPI report is expected to show that inflation remains above the Fed's target, increasing the likelihood of a rate hike and raising inflation expectations for 2023, potentially leading to further upside risk to rates from Treasury auctions.
Germany is projected to experience a deeper recession than previously forecasted, with its economy expected to contract by 0.5% this year due to inflation, manufacturing decline, weakness in interest-rate-sensitive sectors, and slower trading-partner demand, according to the International Monetary Fund (IMF).
Wholesale level inflation surged more than expected in September, indicating the challenge of controlling price pressures in the economy, which has implications for the Federal Reserve's interest rate decisions.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
Stock futures rise as core U.S. inflation decelerates in September.
US inflation rose 3.7% in September, surpassing economists' expectations and remaining well above the Federal Reserve's target of 2%.
Headline inflation is expected to have eased in September, while pay growth is slowing, with economists predicting that annual inflation fell slightly to 6.5% from 6.7% in August, although it still remains well above the Bank of England's 2% target, and the jobs market weakening and reducing the need for employers to increase wages.
The inflation rate in Britain remained steady in September, defying expectations of a small decline, due to a rise in fuel prices offsetting a slowdown in food inflation.
UK inflation remains unchanged at 6.7% in September, raising doubts over Rishi Sunak's pledge to halve inflation by the end of the year, as rising fuel prices offset the first monthly fall in food prices in two years.
UK inflation unexpectedly holds at 6.7% in September, keeping the possibility of another interest rate hike alive, driven by a rise in petrol prices and robust core inflation and services prices.
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