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ECONOMY

Inflation hits 14-year high in 2008

German inflation slowed in December but Europe's biggest economy still registered its highest annual inflation rate in 14 years, provisional official figures released on Tuesday showed.

Inflation hits 14-year high in 2008
Photo: DPA

The inflation rate eased to 1.1 percent in December compared with the same month last year, down from 1.4 percent in November, according to the figures from the national statistics office Destatis.

But for all of 2008, an inflation rate of 2.6 percent exceeded last year’s level of 2.2 percent and was the highest since 1994, when it reached 2.8 percent.

“The year 2008 started out with relatively high inflation rates, which were highest in June and July at 3.3 percent” on a 12-month basis, a Destatis statement said.

The spike and a subsequent sharp slowdown were mainly the result of volatile prices for fuels and some food items, it added. Final figures are due on January 15.

Postbank analyst Fabienne Riefer said inflation for the entire eurozone, which will have 16 members when Slovakia joins on Thursday, should now fall below 2.0 percent in December for the first time since August 2007.

The European Central Bank’s medium-term target is close to but below 2.0 percent. In mid 2009, eurozone inflation could also fall below 1.0 percent before rising towards the end of the year, Riefer forecast.

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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