Killer bacteria helps contain inflation

Inflation in Germany stayed put at 2.3 percent in June, in part because of a drop in vegetable prices sparked by a killer bacteria, the national statistics office said Tuesday.

Killer bacteria helps contain inflation
Photo: DPA

Oil prices were up compared to the same period last year, but the cost of many vegetables plunged because of a nationwide scare over an E. coli bacteria outbreak that has claimed at least 47 lives, according to the provisional figures.

In the western state of Baden-Württemberg, one of six regions which provide data for the initial inflation estimate, the prices of lettuce, tomatoes and cucumbers dropped by more than 20 percent in June.

The government warned consumers about eating these vegetables before determining that the outbreak had most likely been caused by sprouts grown on a farm in northern Germany.

The inflation figure is unlikely to deter the European Central Bank (ECB) from hiking rates in July.

“The ECB cannot base its monetary policy simply on Germany’s prosperous economy” but must take account of other eurozone countries in financial difficulty, the bank said in a statement last week.

Andreas Rees, an economist at Unicredit bank, also sees “inflation raising its ugly head” again soon as firms pass on to customers the cost of higher raw materials.

In May, the cost of imports into Germany climbed by 8.1 percent over the year in part because of higher metal prices, according to official data also released on Tuesday.


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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.


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.