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ECONOMY

German inflation rises in January

German consumer prices rose 2.8 percent in January on a 12-month comparison, driven by increases in the food and energy sectors, but fell 0.4 percent from December, official data showed on Friday.

Compared with last January, fuel prices soared 13.1 percent, electricity prices rose 7.4 percent and consumers paid 7.7 percent more for their food, the figures from Germany’s Federal Statistics Office showed.

The price rise was at its sharpest for milk products and eggs, with shoppers having to shell out 22.1 percent more cash, the statistics office said. But compared with December prices fell 0.4 percent, a drop explained by cheaper holidays and hotels as operators relaxed their prices after the Christmas period, it said.

Preliminary indications given earlier by the statistics office had been for prices to have risen 2.7 percent year-on-year in January and to have fallen 0.3 percent from December.

Rising prices for basic staples like food, electricity and fuel has caused worries among economists that consumers in Europe’s biggest economy would cut down on spending.

Stubbornly high inflation across the eurozone has also been a concern for the European Central Bank, causing it to refrain from following the US Federal Reserve and cutting interest rates to stimulate the economy. The ECB has set an upper target ceiling for eurozone inflation of 2.0 percent.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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