Producer prices are falling at a record pace - good news for consumers

Producer prices are falling at a record pace - good news for consumers

Producer prices are seen as a harbinger of inflation. In September they fell at an unprecedented pace. The commercial products cost around 15 percent less than in the previous year.

How www.tagesschau.de reported that prices at manufacturer level in Germany fell at an unprecedented rate in September. On average, producers of commercial products reduced their prices by 14.7 percent compared to the previous year. This decline is the largest since records began in 1949 and even exceeds the previous record set last month.

This is good news for consumers because producer prices reflect prices before further processing or sale to retailers. This enables early conclusions to be drawn about the development of consumer prices. At 4.5 percent, consumer prices are currently showing the slowest growth since the Russian war of aggression against Ukraine in February 2022. Experts such as ING chief economist Carsten Brzeski assume that the inflation rate can fall to around three percent by the end of the year.

The sharp price decline in September is primarily explained by a so-called base effect. In the previous year, prices for manufacturers temporarily rose by a record 45.8 percent, due to Russia's war against Ukraine, which made energy and raw materials extremely expensive. However, prices have now fallen again, leading to general inflation at the company level. There has been a significant decline in energy prices in particular, which have fallen by around 35 percent compared to the previous year. Intermediate goods such as metals and chemical raw materials as well as wood have also become cheaper.

Food prices, on the other hand, rose by 5.5 percent compared to the same month last year. There were particularly high price increases for sugar (+84.7 percent) and processed potatoes (+28.5 percent). Fruit and vegetable products were 17.2 percent more expensive than in the previous year. This development in producer prices has an impact on consumer prices, which the European Central Bank (ECB) bases its monetary policy on. Due to high inflation, the ECB has raised its key interest rates significantly since last summer.

Overall, the sharp fall in producer prices in September shows relief for consumers as they indicate a possible weakening of inflation. The lower prices offer long-term potential for improving the economic situation in Germany.