Inflation is rising sharply – experts expect a further boost
Energy products such as oil and gasoline in particular have become more expensive
Source: dpa / Jens Büttner
The inflation rate has again made a big leap up – services and goods have become more expensive compared to the same month last year. By the end of the year, the inflation rate could even break the five percent mark.
BA sharp rise in German consumer prices is becoming apparent in July. In the six relevant federal states of Baden-Württemberg, Bavaria, Brandenburg, Hesse, North Rhine-Westphalia and Saxony, goods and services were between 3.4 and 4.3 percent more expensive than in the same month last year, as the statistical offices announced on Thursday. In June, the nationwide inflation rate was still 2.3 percent. The Federal Statistical Office wants to publish its first estimate for the whole of Germany in the afternoon, which is based on the data from these six federal states. Economists polled by Reuters expect a value of 3.3 percent – it would be the highest in 13 years.
“There are signs of a strong upward leap, inflation is marching towards the four percent mark,” said Berenberg Bank’s chief economist, Holger Schmieding. “The main reason is the VAT effect.” Bundesbank President Jens Weidmann reckons that the inflation rate could move in the direction of five percent by the end of the year.
In the first half of the year, German consumer prices had already risen more sharply than they had for around ten years, because energy products such as oil and gasoline in particular became more expensive with the global economic recovery after the Corona slump.
In the second half of the year, the VAT effect will be added: The federal government lowered the rates in the second half of 2020 in order to relieve the economy and consumers in the Corona crisis and to stimulate consumption. Now the prices are compared with the lower ones at the time, which also drives them up.
The European Central Bank (ECB) is aiming for an inflation rate of two percent in the monetary union in the medium term. For a transitional period, it will also accept that this target will be exceeded in order to be able to continue to push the economic recovery in the euro zone with a lot of cheap money. The ECB also helps highly indebted countries such as Italy, which can therefore refinance very cheaply.
For many workers, high inflation means a real loss of purchasing power. The wages of millions of employees with a collective agreement will rise more slowly than consumer prices in 2021 for the first time in a decade, according to the collective bargaining archive of the union-affiliated economic and social science institute (WSI). Taking into account the contracts concluded in the first half of the year and the increases agreed for 2021 in previous years, collectively agreed wages are likely to increase by an average of 1.6 percent and thus significantly more slowly than prices.
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