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German inflation rockets as sales tax holiday ends

By Abigail Townsend

Date: Wednesday 10 Feb 2021

LONDON (ShareCast) - (Sharecast News) - German inflation rose sharply in January, official data showed on Wednesday, after the country's sales tax holiday came to an end, pushing up prices.
According to Destatis, the Federal Statistics Office, the consumer price index rose 1.0% in January year-on-year, or by 0.8% on December, when it fell 0.3%.

It is the first time inflation has risen since June 2020, when it increased 0.9%.

The harmonised index of consumer prices, which allows for comparison with the rest of the eurozone, rose 1.6% year-on-year in January, and by 1.4% on the previous month. In December, the HICP was -0.7%.

The German government introduced a temporary reduction in value added tax last year, to help support the economy during the Covid-19 pandemic. The holiday ended on 31 December, with the reduced rate now only applying to restaurants and catering services.

Destatis noted: "The fact that the higher tax rates since January 2021 have been passed on to the consumers is one reason for the increase in consumer prices."

Higher food prices were another driver. Food inflation rose by 2.2% in January, a sharp increase on December's 0.5% rise, led primarily by higher prices for meat, fruit and vegetables.

Energy prices were lower, down 2.3%, although the decline has slowed markedly since December, when they fell 6.0%.

Excluding energy, the inflation rate would have risen 1.4%.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "Inflation in Germany was lifted by both headline and core pressures at the start of the year. Food inflation rose by 2.2% and energy inflation rebounded. This component will increase further in the next few months, as base effects from last year's collapse in oil prices turn, peaking in April."