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ECONOMY

ECB details anti-deflation cash splurge

The European Central Bank (ECB) is flooding the European markets with money by buying up government bonds, hoping to push prices on consumer goods back up.

ECB details anti-deflation cash splurge
Photo: dpa

ECB President Mario Draghi announced on Thursday that the ECB will begin its purchases of government bonds on March 9th. 

The purchases should continue until September 2016 and reach a value of €60 billion per month, pumping a total of €1.1 trillion into financial markets.

The programme would be continued if by this date inflation still had not approached the bank's goal of 2 percent, Draghi said.

He claimed that since the programme was announced in January the situation had already improved.

Bank lending had increased and the mood among consumers and companies had brightened, he said.

But in the current year the effects on retail prices are likely to remain limited, according to the most recent ECB forecast.

Europe's monetary authorities expect that inflation in 2015 will sink to 0.0 percent – meaning that retail prices will not rise at all.

Falling oil prices have also affected the ECB's prognosis, which has been lowered from a previous estimate of 0.7 percent inflation for the year.

In the next two years, the money splurge should, according to the forecast, have an effect on retail prices.

Retail costs are expected to rise 1.5 percent in 2016 and 1.8 percent in 2017.

The good news was an expectation that instead of 1 percent growth this year, the experts now hope for growth of 1.5 percent.

They are expecting growth to reach 2.1 percent by 2017.

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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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