• Wednesday, Feb 01, 2023
  • Last Update : 10:24 am

German inflation hits fresh 13-year high in August

  • Published at 01:36 pm August 31st, 2021
Full shelves with fruits are pictured in a supermarket during the spread of the coronavirus disease (Covid-19) in Berlin, Germany, March 17, 2020 Reuters

The national inflation rate (CPI) even soared to 3.9% in August, hitting its highest since December 1993 when the economy boomed following German reunification

  1. Higher energy, food prices drive surge in German inflation
  2. But also pandemic-related special VAT factors at play
  3. Economists expect inflation to ease again from early 2022

Germany's annual consumer price inflation accelerated to a fresh 13-year high in August, data showed on Monday, underlining growing price pressures as Europe's largest economy recovers from the pandemic and companies struggle with supply shortages.

Consumer prices, harmonised to make them comparable with inflation data from other European Union countries (HICP), rose 3.4% compared with 3.1% in July, preliminary figures from the Federal Statistics Office showed.

The August reading was in line with a Reuters poll and marked the highest since July 2008, when the harmonised inflation rate also hit 3.4%.

The national inflation rate (CPI) even soared to 3.9% in August, hitting its highest since December 1993 when the economy boomed following German reunification.

Also Read - Euro zone inflation surges to 10-year-high, in headache for ECB

"This is due to higher energy and food prices, while the core inflation probably even fell slightly form 2.9% to 2.8%," Commerzbank analyst Ralph Solveen said.

Germany's preliminary consumer price figures do not include values for core inflation.

LBBW economist Elmar Voelker said the inflation rate would rise further in the coming months, pointing to special factors and base effects from a temporary reduction in VAT rates in the second half of 2020 that affected comparisons.

"From the beginning of 2022, price pressures ... will probably ebb, but the exciting question will be how quickly and how strong this weakening will be," Voelker added.

Recent hikes in producer and import prices could be an early indication that increased inflation rates will ultimately be more persistent at the consumer level than previously thought.

"In this case, the debate within the European Central Bank, which is currently still primarily centered around the risk of low inflation, could take on a new direction," Voelker said.

German central bank chief Jens Weidmann has said he is worried about the prospect of the ECB's low-interest-rate environment being extended for too long.

Weidmann said last month his advisers anticipated inflation nearing 5% in Germany later this year.

Data released earlier on Monday showed German inflation outpaced wage growth in the second quarter as rising price pressures caused by the economic recovery and supply bottlenecks in manufacturing reduced the spending power of consumers.

The latest data suggests wages will not keep up with inflation also for the rest of the year. This means there are no signs yet of a wage-price spiral which is seen as a prerequisite for inflation to remain at an elevated level in the medium term.

In Spain, EU-harmonised consumer prices rose 3.3% year-on-year in August from 2.9% in July, separate data from the National Statistics Institute (INE) showed.

The German and Spanish figures suggest that euro zone inflation, due on Tuesday, has strengthened further in August.

A Reuters poll of analysts predicts euro zone inflation (HICP) to jump to 2.7% from 2.2% in the previous month.

"We think euro zone inflation will remain high this year, peaking at close to 3% in Q4, before returning to 1.5% next year," Oxford Economics analyst Daniela Ordonez said.

The ECB, which next meets on Sept. 9, will have to decide whether to maintain an elevated volume of bond purchases or allow them to decline, given a drop in yields and a weakening of the euro since the last policy meeting.

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