German inflation jumps to 2.8% in July after fuel tax relief ends

Sharply rising energy prices following the expiry of a fuel tax relief scheme pushed Germany's inflation rate to 2.8% in July, the Federal Statistical Office confirmed on Wednesday.

Consumer prices rose 0.8% from June to July of this year, the Wiesbaden-based statisticians calculated. 

Wednesday's figures confirmed the office's preliminary figures.

"Energy prices continued to rise at an above-average rate and thus remained the central driver of inflation," said Ruth Brand, president of the Federal Statistical Office.

Inflation could rise further in the coming months. The conflict between the United States and Iran remains unresolved, and hopes that the Strait of Hormuz would reopen have for now been dashed. The strategically vital waterway for global oil and gas trade has been effectively blocked since a conflict in The Gulf began smouldering at the end of February. An economy like Germany's, which depends heavily on raw material imports, is feeling the impact acutely.

In May and June, the government had dampened price pressures by cutting energy taxes on petrol and diesel by just under €0.17 ($0.20) per litre. 

The inflation rate had fallen to 2.3% in June. Back in April, the oil price shock triggered by the Iran conflict had pushed the rate to 2.9%, its highest level since January 2024.

Energy prices in Germany have now surged again. In July, consumers paid 8.3% more for fuel and heating than a year earlier, compared with an increase of just 3.4% in June.

Petrol prices above €2 per litre are once again the norm at filling stations across the country. Drought conditions could push fuel prices even higher in some regions: Low water levels on key transport routes such as the Rhine are significantly increasing logistics costs for fuel and certain intermediate goods, the ADAC motoring association said.

Food prices, by contrast, have risen comparatively moderately for months. In July, they were 0.4% above the same month a year earlier, matching the two preceding months. Meat and meat products rose 1.9% year-on-year in July, while sugar and confectionery climbed 4%. Butter, however, was 30.1% cheaper than a year earlier.

If energy does not become more affordable soon, food prices could also rise more sharply. Transport, refrigeration and storage are all currently more expensive, and economists expect this to feed through to supermarket prices. Compounding the pressure, heat and drought are taking a toll on agriculture and could reduce harvests.

Services - including restaurant visits and travel - rose 2.9% in July, slightly less than in each of the two preceding months.

Higher inflation erodes purchasing power, meaning people can buy less for each euro they spend. That weighs on private consumption, which is an important pillar of domestic economic activity.