The Iran war is driving up energy prices and making life more expensive in Germany, with consumer prices in August 2.9% higher than in the same month a year earlier, the Federal Statistical Office confirmed in final figures reported on Thursday.
The last time Europe’s largest economy saw a stronger increase was in December 2023, when inflation stood at 3.7%.
Economists also expect elevated inflation rates in the coming months. The ifo Institute is forecasting inflation of 2.8% in Germany for the whole of 2026 and the rate could rise to 3% in 2027.
The conflict in the Gulf is not over and ships still cannot pass unhindered through the Strait of Hormuz, which is important for the oil and gas trade.
Motorists in Germany feel this at the petrol station and homeowners in their heating bills. A fuel rebate, which the federal government used to provide some relief for motorists for two months, expired at the end of June.
Energy biggest driver of prices
In August, consumers in Germany had to pay 10.5% more for fuel and heating than a year earlier, according to calculations by the Wiesbaden-based statisticians.
“The rise in energy prices, caused primarily by the war in Iran, was particularly noticeable in the case of motor fuel prices,” said Ruth Brand, president of the Federal Statistical Office, in a press release on the figures.
Compared with the same month a year earlier, fuels were 27.7% more expensive in August, and heating oil was almost 50% more expensive.
The longer energy prices stay high, the greater the risk that other prices will also rise because transport and refrigeration of food, among other things, become more expensive. Companies will, according to economists, be forced to pass the cost surge in energy on to their customers.
Moreover heat and drought reduce harvests and result in low water levels, which make deliveries more expensive. Many barges on German rivers have had to significantly reduce their cargo due to low water levels.
Food prices barely rise
One bright note is that food prices have recently barely risen. In August, they were only 0.1% higher than in the same month a year earlier. However, some goods cost significantly more than they did a few years ago.
Russia’s war of against Ukraine, which began in February 2022, had already driven energy and food prices sharply higher.
From July to August this year, consumer prices in Germany rose by 0.2%. Core inflation excluding food and energy remained at 2.4% in August.
The higher the inflation rate, the lower people’s purchasing power: they can then afford less for every euro and hold back on bigger purchases. Private consumption, which is an important pillar of the economy in good times, has been weak for months.