In September; German inflation reached a new high

German inflation rose at a record pace in September, according to figures released on Thursday, highlighting rising pricing pressures as Europe’s largest economy recovers from the pandemic and businesses cope with supply constraints. Consumer prices grew 4.1 percent year on year, compared to 3.4 percent in August, according to the Federal Statistics Office, after being harmonised to be comparable with inflation rates from other European Union countries.

That was the highest rate since the EU-harmonised series began in January 1997. An examination of the data revealed that the most expensive things were energy and food. Inflation has risen this year as a result of one-time factors ranging from tax increases to supply bottlenecks and commodity price increases, fueling debate over the necessity for extremely loose monetary policy.

The Bundesbank announced this week that German inflation will likely rise from current levels and remain above 2% until mid-2022, exceeding the European Central Bank’s objective for the 19-nation Eurozone. In a report, Fritzi Koehler-Geib, chief economist at state lender KfW, stated that while one-time effects should fade in the new year, other issues such as natural gas and coal supply problems might keep prices high.

“Energy prices are currently also rising for other reasons: For example, there are shortages of coal and natural gas and supply problems on the part of Russia and Norway. In addition, the cold past winter has emptied stocks, and wind energy is suffering a weather-related lull,” said Koehler-Geib. She added: “As a result, energy prices are likely to remain high until the end of the year, with gas and electricity components pushing them up sharply. This should keep headline inflation well above 3% for the rest of the year, before slowly falling back below 2% in mid-2022.”