German inflation rate hits highest level since 2008

German economic dynamics

Driven by sharp increases in clothing, food, and entertainment prices, Germany’s inflation rate has soared to its highest level in more than a decade, a move that may intensify the debate about ultra-loose monetary policy in the Eurozone.

The Federal Statistical Office announced on Thursday that Germany’s harmonized consumer price index in July was 3.1% higher than a year ago. The last time this level was reached was before the 2008 financial crisis.

Germany’s inflation rate is rising faster than most other European countries, partly because of one-off effects, such as the removal of last year’s temporary cut in value-added tax, new carbon taxes, and reweighting of the package of products used to calculate price changes.

But because of many German factories, the prices of manufactured goods have also been pushed up. Fightinge Rising costs, shortages of materials such as semiconductors, metals, plastics and wood, and bottlenecks in container transportation routes.

Carsten Brzeski, ING’s head of macro research, said that “producer prices will rise further, which may put more pressure on consumer prices.”

As the world economy rebounds from the impact of the pandemic, inflation rates in many countries are rising, which has increased the pressure on central banks to reduce monetary stimulus measures introduced in response to the crisis.

German central bank governor Jens Weidmann warned last week that inflation in Europe’s largest economy would “go 5% by the end of the year”-higher than at any time since the introduction of the euro than it was two decades ago.

According to data from the European Commission, the sales prices of companies in July are expected to rise for the fifth consecutive month. The commission said on Thursday that its Eurozone business and consumer confidence indicators rose by 1.1 points to 119, a record since the survey began in 1985. .

Although there are few signs that German wages are spiraling upwards, the number of unemployed in the country has begun to decline. According to data released on Thursday, the number of employees in Germany increased by 78,000 in June. This is the largest increase since the pandemic, although the number of employees still fell by 573,000 compared to February 2020 (the month when Covid-19 first hit Europe).

Earlier on Thursday, the Spanish Statistics Agency stated that its inflation rate in July was 2.9%, the highest level since 2017, and was higher than the 2.7% in June due to rising accommodation and natural gas prices.

Eurozone price growth data will be announced on Friday. Economists surveyed by Reuters predict that the euro zone inflation rate will rise from 1.9% in June to 2% in July. This will be in line with the new inflation target set by the European Central Bank, but its policymakers have stated that they expect inflation to fall again next year.

Morgan Stanley economist Markus Gütschow said: “Once the fundamental effects of oil and policy actions weaken and the economy adjusts to the new normal post-pandemic, we remain skeptical about the intensity of long-term inflation and expect to decline next year. , Once again fell below 2%.”

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