German inflation hits 40-year high

Consumer prices in Germany rose at their fastest pace in four decades, data published Thursday showed, as Russia's invasion of Ukraine pushed up energy prices.

People walk in Berlin's Neukölln district earlier in April.
People walk in Berlin's Neukölln district earlier in April. Photo: picture alliance/dpa | Carsten Koall

Inflation climbed to 7.4 percent in April from 7.3 percent in March, according to the federal statistics agency Destatis.

“Energy prices, in particular, have increased considerably since the war started in Ukraine” with a knock-on impact for inflation, Destatis said in a statement.

The last time prices rose at a faster pace was for West Germany in the autumn of 1981, as the Iran-Iraq War caused oil prices to increase “sharply”.

Germany, like many of its European neighbours, is highly dependent on supplies of Russian gas to meet its energy needs.

The outbreak of the conflict sent prices soaring, while the threat of a potential stop to supplies could push inflation higher if realised.

READ ALSO: Germany slashes growth forecast amid Ukraine war

On Wednesday, the Russian energy giant Gazprom stopped deliveries to Poland and Bulgaria for refusing to pay in rubles.

German inflation would likely “accelerate further in the coming months”, said Carsten Brzeski, head of macro at the ING bank, as the war in Ukraine
continued to rumble.

While the soaring cost of energy was still the main driving force behind rising prices, “the pass-through to all kinds of sectors is still in full swing”, Brzeski said.

Year-on-year prices for energy in the inflation statistics rose by 35.3 percent, while food costs increased by 8.5 percent in April, according to Destatis.

“Delivery bottlenecks due to interruptions in supply chains caused by the Covid-19 pandemic” had also delivered a bump to inflation, Destatis said.

Coronavirus-related lockdowns in China have notably caused interruptions to deliveries from the key manufacturing hub.

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German inflation slows in June as government steps in

German inflation slowed slightly in June, official figures published Wednesday showed, as government measures to ease the pressure on consumers from rising prices took force.

German inflation slows in June as government steps in

Inflation sat at 7.6 percent in June, according to the federal statistics office Destatis, still well above the two-percent target set by central banks but down from 7.9 percent in May.

Consumer prices in Germany have been on an almost constant climb for 18 months, with the last fall in the rate registered in January this year.

Inflation was first stoked by the disruptions arising from the coronavirus pandemic, and then by the war in Ukraine.

Russia’s invasion had caused “prices for energy to climb markedly”, leading to high rates of inflation, Destatis said.

Year-on-year energy costs were up 38 percent in June, according to the statistics body, while prices for food also increased by 12.7 percent in the same timeframe.

The disruption caused to supply chains by the war and the pandemic also added to price pressures, it said.

The upwards momentum was only broken by government moves to ease the pressure on consumers, including a discounted fuel tax and a flat-rate €9 monthly ticket for public transport.

READ ALSO: How is Germany’s €9 ticket really affecting public transport

The full impact of these measures could “not be assessed” in the preliminary data, Destatis said.

“This is not yet the end of surging inflation rates,” said Carsten Brzeski, head of macro at the ING bank.

Rather, it was an example that it is “currently governments, not central banks, that can stop inflation”, he said.

Despite the relief for consumers from the government on the costs of transport and energy, “food price inflation continued to pick up” while prices were also marked up for services, Brzeski said.

Looking ahead, the government’s measures are set to expire at the end of August, while “the potential end to Russian gas for Germany is also likely to increase energy prices going into the winter season”, he said.

Spanish inflation reached double digits in June, coming in at 10.2 percent, according to figures published earlier Wednesday.

The data suggested “eurozone inflation is moving up and not down like German inflation”, adding to the pressure on the European Central Bank, Brzeski said.