Gasoline prices have risen particularly significantly.
(Photo: dpa)
Frankfurt The inflation rate in Germany continued to rise in April. Consumer prices increased by 7.4 percent compared to the same month last year, as the Federal Statistical Office announced on Thursday based on an initial estimate. That’s the highest level since the fall of 1981. Economists had expected it to remain at March’s 7.3 percent level.
Energy prices rose 35.3 percent after 39.5 percent in March. Grocery prices rose 8.5 percent. Goods increased by 12 percent and services by 2.9 percent.
At the beginning of the year, the price trend was stronger than initially assumed. It is currently fueled even further by the war in Ukraine. Russia is one of the main exporters of oil and gas, but also of some metal commodities such as palladium, wheat and fertilizer components.
The persistently sharp rise in prices is putting the European Central Bank (ECB) under pressure. She is actually aiming for an inflation rate of two percent for the euro area. Since last year, however, it has been significantly higher.
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ECB President Christine Lagarde has recently emphasized several times that the central bank pays particular attention to wages because they are very decisive for further price developments. Economists fear a wage-price spiral in which both factors reinforce each other.
At her press conference in mid-April, Lagarde pointed out that the data so far does not indicate stronger wage dynamics, but that it will take time for such a process to become visible. The situation in the euro area is different. However, the longer inflation remains at a high level, the greater the risk.
Wage demands by the IG Metall trade union for the steel industry have recently caused a stir in Germany. She wants to demand 8.2 percent more wages there. The demand is “certainly high,” says the economist at the US bank JP Morgan, Greg Fuzesi. From his point of view, this also applies if you consider that the collective bargaining usually results in much less than the unions are demanding. According to Fuzesi, collective bargaining in the steel industry is therefore an important test case.
Fuzesi also points out that the Bundesbank’s indicators for the monthly development of negotiated wages have recently turned out to be higher than in the previous year. The value was 2.2 percent in January and 4.2 percent in February. This also includes one-off payments and bonuses. Even if the values fluctuate strongly in some cases, the overall trend there is significantly higher than last year.
Commerzbank chief economist Jörg Krämer also sees the danger of a wage-price spiral. However, he points out that the collective bargaining parties in Germany agreed on unusually long terms last year due to the pandemic. That is why this year only a third of the employees are due for collective bargaining.
“But next year, labor costs are likely to rise more sharply across the board – especially since there is a shortage of workers in many sectors,” says Krämer. This speaks for an inflation rate well above two percent if you exclude the volatile energy prices.
Some representatives within the Governing Council of the ECB argue that the central bank must now take countermeasures quickly in order to reduce the risk of a wage-price spiral. Several Council members have recently indicated a possible rate hike in July.
ECB Vice President Luis de Guindos had said that he expected the ECB’s bond purchases to end in July. This is a prerequisite for an interest rate hike. De Guindos emphasized that a rate hike is possible as early as July. Bundesbank boss Joachim Nagel also said recently that the first interest rate hike could be expected in early July.
More: ECB boss Lagarde promises a rate hike in the summer