VAT Reduction in Germany Reduces Inflation to the Lowest 


The inflation index in Germany reached its lowest level in the last five years in September. Thus, standing at a negative rate of -0.2%, as reported by Destatis. 

It is the second time in 2020 that Germany has registered a negative rate. In July, the country recorded a rate of -0.1%. In August, it was 0%.

On the other hand, inflation fell again in September to -0.2%. When both concerning August, and in comparison with the same month of 2019, Destatis has specified. The price index had been lower only in 2015 when it fell to -0.3%.

The German statistical agency specifies that a reason behind the drop in prices includes the cut in the Value Added Tax, VAT, applied by the German government to counteract the economic consequences of the new coronavirus pandemic.

Thus, since last July, there has been a temporary VAT reduction in Germany. It lowered from 19% to 16% and from 7% to 5% for the reduced rate that will remain until December.

Consumer price index decreased by 0.20%

In the consumer price index, the most critical categories in Germany are housing, water, electricity, gas & other fuels (32% of the total weight), Transport (13%), Recreation, entertainment & culture (11 %), and Food & non-alcoholic beverages (10%). The index also includes Miscellaneous goods & services (7%), Furniture, lighting equipment, appliances & other household equipment (5%), Restaurant & accommodation services (5%), Health (5%), and Clothing & footwear (5%). The remaining 7% of the index is composed of Alcoholic beverages & tobacco, Communication, and Education.

The postal and telecommunications sectors (-2.9%) recorded the most massive price drops in September. It was followed by transport (-2.7%), clothing and footwear (-2.1%), furniture and household appliances (-0.6%). And lastly, leisure, culture, and entertainment, which dropped by 0.5%.

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