Europe
2022.05.30 23:11 GMT+8

German inflation reaches 7.9%, the highest levels since 1952

Updated 2022.05.30 23:11 GMT+8
CGTN

The sun sets on the European Central Bank headquarters in Frankfurt, Germany.

Inflation in Germany hit another record in May, at 7.9 percent year-on-year – the highest level since reunification, and indeed since January 1952, almost a decade before the Berlin Wall went up. 

Provisional figures released on Monday show that the indicator gained 0.5 points compared to April – pushed by the war in Ukraine, which is increasing energy and food prices, further putting the European Central Bank (ECB) under pressure.

The harmonized price index, which serves as a benchmark at European level, rose 8.7 percent over one year, smashing the European Central Bank's medium-term target of 2 percent.

This figure considerably increases the pressure on the guardians of the euro, after Monday's announcement of inflation of 8.7 percent in May in Spain, a week before a meeting to decide on the timetable for monetary tightening.

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Monday's figures suggest the 19-nation eurozone has yet to reach peak inflation, with many European nations highly reliant on Russian gas and oil imports. The latest eurozone inflation data will be released on Tuesday.

The ECB currently has a bank deposit rate of minus 0.5 percent, meaning lenders pay to park their excess cash at the central bank. Its president Christine Lagarde recently announced that she wanted to raise rates as of July, and envisages an exit from negative rates "by the end of the third quarter."

Chief economist Philip Lane spoke on Monday of two increases of "25 basis points" (0.25%), in July and September, to deal with the explosion in prices.

But German inflation "fuels the discussion (...) on a possible rate hike of 50 basis points (0.5%)" at once, comments Carsten Brzeski, analyst for ING.

"The ECB has clearly passed the stage of discussing whether and even when policy rates should be increased," said Brzeski. "The only discussion seems to be on whether the ECB should start with a 25 basis point rate hike in July or 50 basis points."

 

Explaining the inflation

The surge in prices is mainly linked to an increase in energy tariffs caused by the Russia-Ukraine conflict, which "strongly influenced the high inflation rates", said Destatis, Germany's federal statistical office.

"Another factor with an upward effect on prices is interruptions in supply chains caused by the COVID-19 pandemic," Destatis added.

As Russia is one of the main suppliers of hydrocarbons to the European Union, energy prices have soared spectacularly in recent months. In May, they jumped 38.3 percent, after 35.3 percent in April and 39.5 percent in March.

The conflict also increases the cost of foodstuffs: in May, this cost jumped by 11.1 percent, after 8.6 percent in April and 6.2 percent in March.

Finally, the shortages of components and raw materials which have slowed down the economy since the coronavirus pandemic have been reinforced by the sanctions against Russia and production stoppages in Ukraine, which supplies the German automotive sector, in addition to other global supply chain problems.

Source(s): AFP
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