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ECONOMY

German inflation spikes to 3.1 percent in March

German inflation spiked to 3.1 percent in March from 2.8 percent in February, with the gain driven by higher food and oil prices.

Consumer prices were up 0.5 percent from February in Europe’s biggest economy. The data from late Friday was based on six key German states, with final figures to be released on April 16.

The main reasons for the increase were the same as those in recent months, with the Federal Statistics Office pointing to “food and non-alcoholic beverages as well as mineral oil products.”

Food costs climbed 7.3 percent on a 12-month basis, while non-alcoholic drinks gained 9.6 percent. Some fuels rose by as much as 44.3 percent, the statistics service said.

Earlier on Friday, German central bank governor Axel Weber forecast that inflation in the 15-nation eurozone would remain around 3.0 percent for much of 2008 and only begin to ease in the second half of the year.

At Capital Economics, Jennifer McKeown noted that “it looks as though March’s increase was due partly to a renewed pick-up in core price pressures,” a worrying sign that inflation could be deeper rooted than in recent months.

Sylvain Broyer at Natixis added that there were risks of still higher prices down the line, saying “several providers of electricity announced a new hike in prices in April for Germany.”

Commerzbank’s Matthias Rubisch said that “given how much prices are rising, private consumption is likely to make no more than a modest recovery of 0.75 percentage points this year.”

Analysts agreed that the likelihood of an interest rate cut by the European Central Bank in the next few months was decreasing in light of growing price pressures.

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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