Rising prices for energy and raw materials are driving the inflation rate up further.
(Photo: Patrick Pleul)
Düsseldorf / Frankfurt The German inflation rate rose to 4.5 percent in October. That comes from a preliminary estimate that the Federal Statistical Office published on Thursday. In September, inflation in Germany jumped 4.1 percent for the first time in almost 28 years above the four percent mark.
Bundesbank President Jens Weidmann expects monthly inflation to even reach five percent at times by the end of the year. Like many economists, the European Central Bank (ECB) attributes the increase mainly to special effects from the pandemic.
In addition to delivery bottlenecks and catch-up effects in consumption, this also includes the withdrawal of the VAT reduction from last year and the new CO2 price. In Germany, 25 euros per tonne of CO2 have been due since January that is generated when diesel, petrol, heating oil and natural gas are burned.
In addition, the oil price fell sharply in 2020 due to the pandemic. Compared to the low values of the previous year, it is now significantly higher. This effect is likely to expire when the comparative values are higher again.
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The European Central Bank (ECB) is aiming for an inflation rate of two percent for the euro area in the medium term. It has repeatedly failed to achieve this goal in the past few years. This year, however, the price increase is higher.
Inflation could develop its own momentum
The members of the Governing Council, the highest decision-making body of the central bank, assess inflation risks differently. The central bank itself raised its inflation forecast significantly in September. For this year she now expects a rate of increase of 2.2 percent for the euro area. After that, she reckons with lower values of 1.7 percent for 2022 and 1.5 percent for 2023.
However, some council representatives consider these estimates to be too low. They point out that temporary effects could keep inflation at a high level for longer. If, for example, energy prices remain at the previous level in the first half of 2022 or if they continue to rise, inflation is likely to remain high for the time being – and thus also drive the annual rate up.
The longer the high inflation rates persist, the greater the risk that they will develop a momentum of their own. This could arise, for example, if the collective bargaining parties factor in more inflation in their wage negotiations and accordingly agree on higher wage agreements. The inflation warner fear that there will be so-called second-round effects.
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