The rising prices across the board in Germany are driving inflation close to the eight percent mark. Goods and services were an average of 7.9 percent more expensive in August than a year earlier, as reported by the Federal Statistical Office (Destatis) on Tuesday. In particular, high energy and food prices provide a boost. After the Russian attack on Ukraine, Germany no longer wants to buy cheap Russian gas and is switching to more expensive sources abroad for the time being, while at the same time pushing ahead with the cost-intensive CO2-neutral conversion of the energy industry.
Before inflation peaked again, which was 7.9 percent in May, inflation had eased off for two months in a row – to 7.5 percent in July. The fuel discount and 9-euro ticket acted as a damper. These expire this Wednesday, which should provide a new price boost.
Energy prices rose 35.6 percent in August, about as much as in July. Food cost 16.6 percent more than in August 2021. In NRW, for example, significantly more had to be paid for quark (57.8 percent), cucumbers (48.8), butter (43.6) and pasta (42.0). than a year before. 2.2 (July: 2.0) percent more had to be paid for services.
“Both energy and food prices are heavily impacted by the Russian invasion of Ukraine, as these countries are major exporters of energy commodities, agricultural products and fertilizers,” said Berenberg Bank economist Salomon Fiedler. For the fall, economists expect significantly higher inflation rates of nine percent and more. “The recently sharply increased stock market prices for natural gas have by no means fully reached consumers,” said Fiedler.
The current survey by the Ifo Institute among 9,000 companies also speaks for persistently high price pressure. “Almost every second company still wants to increase prices in the next three months,” said Ifo expert Klaus Wohlrabe. “Price increases remain on the agenda.” Inflation rates at the current level have never existed in reunified Germany. In the old federal states you have to go back in the time series to the winter of 1973/1974 during the oil crisis to find similarly high values.
Council member Klaas Knot believes that the European Central Bank should continue to raise interest rates quickly, as inflation in the currency area is likely to remain high for the foreseeable future. The Dutch central bank governor said on Tuesday that supply shocks related to the war in Ukraine were not the only explanation for the rise in prices and that strong demand in the euro area after the lifting of pandemic restrictions was also to blame.
“The widening and deepening of our inflation problem calls for strong action,” Knot said in Copenhagen. “A rapid normalization of interest rates is an important first phase.”
With inflation likely to have hit another record high in August, Knot is among a hawkish minority at the ECB pushing for a possible 75 basis point hike in interest rates at next week’s meeting. But others urge caution as dwindling Russian energy supplies threaten to plunge the 19-member eurozone economy into recession.
Knot acknowledged that the economic outlook is uncertain and recent indicators have deteriorated. However, it was “unlikely that a slowdown in economic activity alone would bring inflation back towards our target in the medium term.” Rather, the latest data increased his “concern that inflation will remain elevated for quite some time.”
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