One of Germany’s largest and most prestigious economic think tanks, the Ifo Institute for Economic Research, has said that the inflation rate in the federal republic appears to have reached a peak, and will likely start dropping for the rest of the year - although some prices will continue to rise. 

Could inflation in Germany be about to drop?

Following months of consistent growth, the inflation rate in Germany is likely to slow in the coming months, the Ifo Institute said on Thursday. Citing its latest survey, which found that the number of companies intending to raise their prices has fallen for the third consecutive month, the institute said that the rapid increase in consumer prices will likely taper off or even drop in the second half of 2022.

“Prices may continue rising, but the tempo will slow,” Ifo economic boss Timo Wollmershäuser told dpa. “That means inflation has reached its highest point and will go down in the course of the second half of the year.” He added that business price expectations take a while to be reflected in consumer prices. 

Inflation to continue in food retail sector

According to the Ifo Institute, the situation differs across economic sectors: the most noticeable decline in price expectations was observable in the construction and industrial sectors. Prices in sectors that more directly affect consumers, such as leisure, culture, hospitality and entertainment, will continue to rise, the institute predicted - but at a slowing rate.

However, the situation is different in food retailing, with almost all companies involved in the buying and selling of food in Germany saying that they were planning to raise their prices. The Ifo Institute said it couldn’t yet see an end to inflation in the food retail sector.

The news has added urgency to calls for the VAT rate to be reduced on certain food items. The chairperson of the Federal Association of Consumer Organisations, Ramona Pop, told the Funke Media Group that a reduction in taxes on certain food like fruit, vegetables and legumes would relieve consumers while also making it easier for people to eat healthily.

Inflation in Germany declined slightly in July, according to the Federal Statistical Office, down to 7,5 percent from 7,6 percent in June. In May it hit a 30-year high of 7,9 percent.