EconomyGermany in trouble due to inflation: Production prices increased...

Germany in trouble due to inflation: Production prices increased 37.2%, the highest rise since 1949

German producer prices rose the most on record in July, further glooming the outlook for Europe’s largest economy, which is suffering from rising costs and weak growth due to the Ukraine war.

Producer prices – a leading indicator of inflation – rose 37.2% in the year, the biggest rise since records began in 1949, the federal statistics office reported on Friday. The monthly rise of 5.3% was also the largest measure.

“Prospects for future developments (of the economy) are currently remarkably gloomy,” the ministry noted in its August monthly report, adding that they were marked by “a high degree of uncertainty.”

Producer prices, seen as a leading indicator of inflation, were mainly buoyed by high energy prices, which as a whole rose 105% from the same month last year, the federal statistics office said on Friday.

“Significantly lower gas supplies from Russia, persistent price increases for energy and, increasingly, for other goods, as well as longer-than-expected supply chain disruptions, also related to the China’s ‘zero contagion’ policy, are weighing heavily on the development of the economy,” he added.

The German economy had stalled in the second quarter, when the war in Ukraine, rising energy prices, the pandemic and supply chain disruptions pushed it to the brink of recession.

Starting October 1, the German government will levy charges on gas consumers that will add several hundred euros to the annual energy bill of an average family. To cushion the impact, taxes on gas sales will be reduced from 19% to 7% while the levies are in place.

Rising energy prices mean inflation shows no sign of calming down any time soon: Germany’s annual inflation in July was 8.5%, in line with the euro zone’s record rate of 8.9%.

Experts predict that German inflation could be around 9% after the expiration at the end of August of the relief measures, which include cheaper public transport and the reduction of the tax on fuel.

According to Ralph Solveen, an economist at Commerzbank, inflation is likely to peak. However, expected wage increases for next year will continue to drive the rise, “and companies are likely to pass on these costs to their clients.”

In April, the German government forecast inflation for 2022 of 6.1%. On October 12, it will present updated economic projections, according to the Ministry of Finance.

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