Insight from alternative data: car fuel duty cut in Germany - Does it work?

To help citizens cope with soaring cost of living, the German government introduced a 3-month reduction in fuel duty starting from June 1. Fuel prices have been one of the main drivers of rising inflation so far and the measure was intended to ease the accelerating cost of living in general.

QuantCube Motor Fuel Nowcast tracks the evolution of gasoline prices on a daily basis with the aim to provide users real-time insights into the cost of running cars. Exhibit 1 shows the evolution of the German Motor fuels CPI index over the last year. From June 1, the graph shows two patterns. The yellow line represents the actual evolution of our indicator, while the blue one represents the possible trajectory without the government intervention. The drop of the yellow line and the increase of the blue one could suggest that the measure is helping to reduce fuel prices.

Learning from the measure in France

However, the impact of the tax cut might only last for a short period, given the similar tax reduction in France had a limited effect to control fuel prices.

Back in April the French government implemented a similar fuel tax cut measure. The fuel prices dropped temporarily after the measure was introduced, but it quickly rebounded to register higher price level than the pre-tax cut period as Exhibit 3 shows. In our observation based on alternative data, the effect of the tax cut on fuel prices is limited as other factors such as supply disruptions and shortages at refineries also have significant influence on fuel prices inflation. According to QuantCube French CPI Nowcast, the fuel duty reduction in April helped to contain the French inflation level only for twenty days. Since then, French CPI indicator has been trending up and currently stands at 5.9% as of June 30 (Exhibit 3).

Is the measure introduced in Germany successful in controlling inflation?

As Exhibit 4 indicates, QuantCube German CPI nowcast is currently showing a plateau and a slight decrease compared to the level in May (-0,2%). However, the situation is likely to be temporary, as the inflation level is being supressed artificially with the recent state intervention. It will be interesting to see how the situation in Germany evolves in coming months.