German economic crisis alert as inflation climbs to 6% | City & Business | Finance


Flash figures released today revealed that Harmonized Index of Consumer Price (HICP) inflation rose 0.3% from last month, marking the fastest rise in almost 30 years . A key driver of inflation in Germany has been rising energy costs and supply chain disruptions which have impacted consumer prices. Christopher Dembik, Head of Macroeconomic Analysis at Saxo Bank, said: “Germany is facing a perfect storm: the energy crisis, supply chain frictions, soaring inflation and “pay me my worth” demands from workers on top of the fourth wave of the pandemic. The inflation figures follow a series of data sets indicating growing difficulties facing the EU’s biggest national economy.

Consumer and business confidence took a hit with sentiment towards the economy overshadowed by supply chain issues and a fourth wave of Covid.

The Covid threat has intensified in recent days with fears over the new Omicron variant causing market turbulence around the world since Friday.

Last week, as Olaf Scholz was named chancellor to succeed Angela Merkel, it was revealed that German GDP growth had fallen below expectations, with growth of just 1.7% for the third quarter.

It was followed by forecasts that GDP growth could decline further in the next quarter or even start to contract.

He explained: “The risk of stagnation or recession has increased.

“We are cautiously more optimistic for other European economies.

“They seem less inclined to reintroduce tough restrictions and they are less exposed to global trade turbulence.

“Think of France or Italy.”

With Germany accounting for almost a third of the EU economy, rising inflation and weak GDP growth pose a major challenge.

Despite soaring inflation across Europe, the European Central Bank has largely rejected any suggestion to raise interest rates.

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Speaking this morning, European Central Bank board member Isabel Schnabel suggested it would be premature to raise interest rates, predicting inflation peaked in November.

She told German broadcaster ZDF: “Most forecasts actually assume inflation will fall below 2%, so there’s really no sign of prices rising out of control.”

“If we thought that inflation would definitely settle above 2%, we would certainly react. However, at the moment, we see no indication of this.”

Mr Brzeski predicted that inflation would more likely “peak in December and start falling in January”.

Part of this decline is thought to be due to the impact of changes to German VAT rules, which are expected to start phasing out by the new year.

He added that the expectation of a possible ECB rate hike remained at 2023.


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