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Consumer prices in Germany expected to rise further

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Consumer prices in Germany expected to rise further
Diesel and petrol prices at a petrol station in Munich. After the Russian attack on Ukraine, energy and fuel prices have risen. Photo: picture alliance/dpa | Sven Hoppe

Inflation in Germany has remained at a high level for months - and after the Russian invasion in Ukraine, consumer prices are expected to rise further.

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Significantly higher energy prices have been fuelling inflation in Europe's largest economy, hitting German households hard. Now experts predict there will be another price spike. 

At petrol stations, people in Germany are already feeling the effects of the Russian attack on Ukraine, with fuel prices climbing to record highs in recent days.

According to an initial estimate from Germany's Federal Statistical Office released on Tuesdaz, the cost of living rose by 5.1 percent in February.

At the beginning of the year, inflation in Germany remained unexpectedly high. Consumer prices rose by 4.9 percent in January 2022 compared to the same month last year. In December 2021, the annual inflation rate stood at 5.3 percent.

Higher inflation weakens the purchasing power of consumers because they can then buy less for a euro than before.

READ ALSO: How will the Russian invasion affect Germany’s gas supplies and prices?

For the time being, there are no signs of the situation easing - on the contrary. Economists expect energy prices to rise due to the Russian attack on Ukraine, which immediately caused price jumps for crude oil and natural gas on the commodity markets.

DZ Bank analyst Christoph Swonke expects that the inflation rate in Germany will continue to go up for the time being.

Meanwhile, economic expert at the Munich-based Ifo Institute, Timo Wollmershäuser, recently predicted: "A five before the decimal point for the inflation rate in 2022 as a whole is becoming more likely than a three."

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In response to rising energy prices, the governing coalition - made up of the Social Democrats (SPD), Greens and Free Democrats (FDP) - has passed a relief package.

For instance, residents in Germany will no longer have to pay the green electricity levy from July onwards. For long-distance commuters, a higher flat rate of 38 cents is planned from the 21st kilometre onwards (from the current 35 cents), retroactive to the beginning of the year. 

Currently, the tax office allows people to write off 30 cents for each kilometre travelled between home and work, regardless of the mode of transport used. 

READ ALSO: How Germany plans to help households cope with rising costs

According to the ADAC, motorists in Germany had to pay an average of €1.811 for a litre of Super E10 on Sunday, 5.4 cents more than last Thursday. Diesel cost an average of €1.729 per litre and has therefore increased in price by 5.9 cents within three days.

And there is no relief in sight: the price of a barrel of Brent crude oil has currently risen to over 100 US dollars, about four dollars higher than last Tuesday, the ADAC calculated.

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The dependence on Russia for raw materials is having a clear impact on fuel prices. Last year, Germany imported a third of its crude oil from Russia.

READ ALSO: How Germany could end its dependence on Russian gas

Since the ECB Governing Council meeting at the beginning of February, there has also been a consensus among Europe's monetary watchdogs that countries can't simply ride out the stubbornly high inflation rate.

The European Central Bank (ECB) could take countermeasures by raising interest rates. However, the war in Ukraine makes it difficult for the central bank to decide on the further course to be taken at the next monetary policy meeting on March 10th.

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