German inflation hits fresh 13-year high in August By Reuters

German inflation hits fresh 13-year high in August By Reuters

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© Reuters. FILE PHOTO: Full shelves with fruits are pictured in a supermarket during the spread of the coronavirus disease (COVID-19) in Berlin, Germany, March 17, 2020. REUTERS/Fabrizio Bensch/File Photo GLOBAL BUSINESS WEEK AHEAD

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BERLIN (Reuters) -Germany’s annual consumer price inflation accelerated to hit a fresh 13-year high in August, data showed on Monday, underlining growing price pressures as Europe’s largest economy recovers from the pandemic and companies struggle with supply shortages.

Consumer prices, harmonised to make them comparable with inflation data from other European Union countries (HICP), rose 3.4% compared with 3.1% in July, preliminary figures from the Federal Statistics Office showed.

The August reading was in line with a Reuters poll and marked the highest since July 2008, when the harmonised inflation rate also hit 3.4%.

The national inflation rate (CPI) even soared to 3.9% in August, hitting its highest level since December 1993 when the economy boomed following German reunification.

LBBW economist Elmar Voelker said the inflation rate would rise further in the coming months, pointing to special factors and base effects from a temporary reduction in VAT rates in the second half of 2020 that affected comparisons.

“From the beginning of 2022, price pressures … will probably ebb, but the exciting question will be how quickly and how strong this weakening will be,” Voelker added.

Recent hikes in producer and import prices could be an early indication that increased inflation rates will ultimately be more persistent at the consumer level than previously thought.

“In this case, the debate within the European Central Bank, which is currently still primarily centered around the risk of low inflation, could take on a new direction,” Voelker said.

German central bank chief Jens Weidmann has said he is worried about the prospect of the ECB’s low-interest-rate environment being extended for too long.

Weidmann said last month his advisers anticipated inflation nearing 5% in Germany later this year.

Data released earlier on Monday showed that German inflation outpaced wage growth in the second quarter as rising price pressures caused by the economic recovery and supply bottlenecks in manufacturing reduced the spending power of consumers.

The latest data suggests that wages will not keep up with inflation also for the rest of the year. This means there are no signs yet of a wage-price spiral which is seen as a prerequisite for inflation to remain at an elevated level in the medium term.

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