Prices: Energy drives inflation to nearly 8 percent in Germany

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Prices

Energy drives inflation in Germany to almost 8 percent

A customer pays at a fruit and vegetable stand at a weekly market in Berlin’s Schönberg district.

Photo: DPA

Life in Germany has become quite expensive in recent months. Inflation hasn’t been this high in decades. Consumers should not expect relief in the short term.

Wiesbaden. Strong price increases for energy and food have driven the inflation rate in Germany to an almost 50-year high. Economists give consumers little hope that prices will fall again quickly.

According to calculations by the Federal Statistical Office, consumer prices rose by 7.9 percent in May compared to the same month last year. The inflation rate in Europe’s largest economy thus remained above the 7 percent mark for the third month in a row. Inflation rose to 7.3 percent in March and 7.4 percent in April. Between April and May, prices rose by 0.9 percent. Statisticians confirmed their preliminary figures on Tuesday.

Inflation at the current level has never existed in reunified Germany. You have to go back to the winter of 1973/1974 to find similarly high prices in the old federal states. At that time, energy prices had risen as a result of the first oil crisis. A high inflation rate reduces purchasing power. Consumers can then spend from as little as one euro.

Energy prices had risen sharply from their peaks in recent months as a result of the Russian invasion of Ukraine. Russia is a major supplier of oil and gas. However, it is not only the tense situation on the world market that is driving energy prices, but also the German CO2 tax: since the beginning of the year 30 euros per tonne of carbon dioxide produced by the combustion of diesel, petrol, heating, oil and natural gas.

Energy prices are rising rapidly

In May, people in Germany had to pay 38.3 percent more for energy than a year earlier. Heating oil was almost twice as expensive in May 2021. Natural gas became more than half as expensive. The prices for fuel (41 percent) and electricity (21.5 percent) also rose significantly.

Supply bottlenecks also ensure that the prices of many goods rise. Food prices rose 11.1 percent. Prices rose again after 8.6 percent in April. Total prices for goods rose by 13.6 percent in May compared to the same month last year. Statisticians have found that price increases occur in “almost all industries”. The federal government is trying to relieve people, among other things, with temporary tank exemptions.

No relief can be seen in the short term. According to calculations by the Federal Office, the wholesale prices that influence consumer prices rose by 22.9 percent in May compared to the previous year. Growth was therefore somewhat weaker than in April 2022. However, wholesale prices rose by 1.0 percent from April to May this year.

For the year as a whole, the Bundesbank expects inflation in Germany to be 7.1 percent based on the so-called Harmonized Index of Consumer Prices (HICP). The European Central Bank uses them for its monetary policy. The HICP in Germany in May was 8.7 percent above the previous year’s level.

In the medium term, the ECB is aiming for stable prices with 2 percent inflation for the currency sectors of 19 countries. In view of the record-high inflation, the central bank decided after much hesitation to exit its ultra-loose monetary policy: bond purchases worth billions expire on July 1st. On July 21, the Governing Council of the ECB intends to raise key interest rates by 0.25 percentage points for the first time in eleven years. Bundesbank President Joachim Nagel recently warned: “Monetary policy calls for consistent action to lower inflation.”

© dpa-infocom, dpa:220614-99-655921/3

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