04/28/2022 16:37 (act 04/28/2022 16:40)
Inflation in Germany rose surprisingly to 7.4% in April due to the war in Ukraine and rising energy prices. This is the highest level since October 1981, as the Federal Statistical Office announced on Thursday. In March, inflation was 7.3%. Experts had expected a mini decline to 7.2% in April. “The rate of inflation is rising to higher and higher levels,” said chief economist Thomas Gitzel of VP Bank.
“The increase in energy prices caused by the war in Ukraine has found its way into the broad price structure.” In May, too, inflation is expected to remain above 7%, expected chief economist Michael Heise of asset manager HQ Trust.
German Finance Minister Christian Lindner was very concerned about price developments. “It’s a burden for a lot of people.” Such a high rate of inflation jeopardizes the stability of the economy and undermines investment, said the leader of the FDP in Berlin. “Such an economic situation could evolve into a deep crisis.” Therefore, the federal government is already releasing companies and residences. Lindner said Germany needs to get rid of a loose fiscal policy. The debt brake anchored in the Basic Law must be met again in 2023.
In North Rhine-Westphalia’s most populous federal state alone, the inflation rate rose to 7.7% in April, the highest level since 1973. In Baden-Württemberg, it rose to 7.0%, the highest level since early 1974. In Bavaria and Hesse, inflation slowed slightly but remained at a high level.
The Russian invasion of Ukraine is causing energy and raw material prices to rise dramatically. “The high double-digit inflation rates for wholesale and import prices show that there is still much more inflation in the pipeline,” said Friedrich Heinemann of the ZEW Institute. Energy prices rose nationwide by 35.3% in April. Consumers realize this when fueling and heating. In NRW, fuel and domestic energy increased by around 37%. Food prices also rose a good ten percent. Nationwide there was an increase of 8.5 percent. Services increased by 2.9 percent and therefore more strongly than in the previous month.
This shows that consumer prices are rising in all sectors and not just around energy. At the same time, this raises concerns among experts that the price increase could last longer than initially anticipated.
The federal government expects an average inflation of 6.1 percent this year – which would be the highest level since 1981. For comparison: last year the rate was 3.1% and in 2020 it was just 0.5%.
Many companies want to raise the prices of their products to cushion the rising costs. “This is now affecting the entire economy,” Ifo expert Klaus Wohlrabe said recently in an interview with Reuters. In retail, three out of four companies plan to do this. Rising consumer prices are also dampening the buying mood in Germany. The GfK barometer for consumer weather has dropped to its lowest level since the survey began in the early 1990s. Nuremberg market researchers justify this with war and inflation and are skeptical of private consumption: “This means that hopes for recovery as a result of the loosening of restrictions caused by the pandemic have finally been dashed.”
The European Central Bank (ECB) sees inflation around two percent as ideal for the economy in the medium term. The central bank is currently in a dilemma. It would have to raise interest rates, but it doesn’t want to weaken the eurozone economy further because of the risk of recession. Experts expect an interest rate turnaround this year, and ECB chief Christine Lagarde described a rate hike for 2022 as likely. “The inflation alarm clock has been ringing for some time, the ECB so far has only hit the snooze button,” said Ulrich Kater, chief economist at DekaBank. “This is over now, the central bank will act.”
ECB Vice President Luis de Guindos warned on Thursday before the European Parliament’s Committee on Economic and Monetary Affairs that consumer prices “very likely” will remain high in the coming months. In March, the inflation rate in the euro zone hit a record 7.4%. Experts polled by Reuters expect the April data with Friday’s forecast to rise to 7.5 percent.