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ECONOMY

German inflation at 15-year high

German inflation has dug in at a 15-year high of 3.3 percent, according to an estimate for July released by the national statisics service on Tuesday.

German inflation at 15-year high
Photo: DPA

The figure for Europe’s biggest economy was the same as the one set in June, and represented the highest rate since December 1993, the Destatis national statistics office said.

On a monthly basis, consumer prices gained 0.6 percent from June, it added. Final figures are to be released on August 14.

Vacation services such as package holidays and lodging compounded steady increases in the costs of energy and food, Destatis said. When energy costs were stripped out, inflation came to about 2.2 percent, the statistics service noted.

But at Commerzbank, analyst Matthias Rubisch noted that even though “the price of fresh vegetables generally falls at this time of year,” a 12-month increase had reached eight percent, “making food the second biggest strain on consumer finances.”

On Monday, a survey of German consumers by the GfK institute said confidence had fallen to a five-year low owing to chronic price increases.

“The positive momentum generated by the job market and the beneficial wage and salary increases compared with last year are consequently being demolished by inflation,” GfK said.

Rubish said that “if oil prices now stay largely stable, we do not envisage the inflation rate falling before the final quarter of the year.” German authorities had hoped consumption would contribute to economic growth, which is now forecast at 1.7 percent this year and 1.2 percent in 2009.

German inflation will also ensure that price increases in the 15-nation eurozone remain well above the European Central Bank’s target of just below 2.0 percent, dampening hopes for lower interest rates in the coming months. Economist Alexander Koch at UniCredit Markets said that barring major shifts in commodity prices, he expected headline and core inflation “to move down only slightly in the coming months, with no sustained relief in sight before spring next year.”

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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