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Good news for German households as energy prices set to drop

Residents in Germany are set to benefit with energy suppliers announcing price reductions for electricity and gas for December and January.

Good news for German households as energy prices set to drop
A photo shows a digital heating thermostat of a gas heating in a flat in Dortmund, western Germany, on October 4, 2022. (Photo by Ina FASSBENDER / AFP)

Millions of households are expected to benefit, bringing a bit of financial relief for many who have experienced increasing energy costs in recent years.

According to a recent report by Verivox, Germany’s largest independent consumer portal for energy, a number of electricity and gas providers in Germany will be cutting prices in the next two months, which will impact energy bills for some residential consumers.

“The turn of the year is regularly a time when energy suppliers adjust their electricity or gas prices,” explained a spokesperson for the municipal utilities association VKU (Verband kommunaler Unternehmen) in Berlin. “The current price reductions are mainly based on the lower purchase prices compared to last autumn and winter.”

Until 2022, more than half of Germany’s gas supply came from Russia. Most of it came through the Nord Stream pipeline, which was hit by sabotage in September last year.

Germany has since launched an ambitious strategy to reduce energy demands and source gas from other suppliers, such as Norway, the US and Saudi Arabia. The plan seems to have worked, with Germany’s gas reserves currently full.

With gas tanks full, and inflation down from last year, many energy companies have been able to secure their supplies at cheaper rates, allowing them to lower their prices for customers.

 
Electricity price cuts averaging 12 percent

According to Verivox, 83 electricity suppliers have announced electricity price reductions so far, averaging 12 percent. However, five suppliers have also announced minor increases. 

Verivox expects this to result in a future average electricity price of about 46 cents per kilowatt hour. In comparison, the electricity price cap, which the German government wants to remain in effect until the end of April, caps the price at 40 cents. 

There are 4.7 million households in areas affected by electricity price cuts, with 1.1 million households expected to pay an average of 12 percent less for electricity, and 900,000 households affected by price increases. 

Almost 100 basic gas suppliers to reduce prices

Natural gas price reductions have also been announced for December and January, by 15 percent on average. According to Verivox, 9.5 million households may be affected. About half of these homes have gas heating systems.

Verivox estimates the future average gas price to be 14 cents per kilowatt hour. This price is also above the current price cap, which is set at 12 cents.

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COST OF LIVING

German inflation edges up, as do real wages

German inflation edged up in May, data showed Wednesday, but analysts said it was due to one-off factors and would not deter the European Central Bank from starting to cut interest rates.

German inflation edges up, as do real wages

Consumer prices in Europe’s largest economy rose 2.4 percent from a year ago, according to preliminary data from federal statistics agency Destatis.

The figure, in line with analyst expectations, was up from 2.2 percent in April, and the first increase in six months.

At the same time, however, German real wages – which account for purchasing power – went up in the first quarter of 2024. With a 3.8 percent rise, that marks the highest jump in Germany over a single quarter since 2008.

Closely watched core inflation — which excludes volatile energy and food prices — was unchanged at three percent, despite expectations of a slight increase.

Observers said the uptick in the headline figure was caused mainly by the introduction of a flat-rate public transport ticket, costing just 49 euros ($53), in May 2023, which distorted the year on year comparison.

The rise is not expected to deter the central bank for the 20 countries that use the euro from beginning to cut rates at its meeting on June 6, with analysts predicting a quarter-point reduction.

Elmar Voelker from LBBW bank said the German data suggested inflation across the whole eurozone had ticked up in May.

But he added that this “will not change anything for the ECB’s decision next Thursday — (policymakers) had already anticipated that the inflation trend would be bumpier from now on,” and they will push ahead with starting to cut.

But they will be keenly watching inflation over the summer months to decide when to push ahead with further reductions, he added.

Beginning in mid-2022, the central bank aggressively hiked borrowing costs to tame inflation that soared following Russia’s invasion of Ukraine and amid pandemic-linked supply chain woes.

For the past few months, it has held its key deposit rate steady at a record high of four percent, as it awaits the right moment to start cutting.

In May’s German inflation figures, energy prices continued to fall, dropping 1.1 percent, Destatis said.

Services inflation rose to 3.9 percent, from 3.4 percent in April.

The German government forecasts inflation at 2.4 percent this year, following a 5.9-percent rate in 2023.

READ ALSO: The important money and tax changes in Germany in 2024

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