DM MONITORING
BERLIN: German annual inflation grew in December at its fastest pace in almost 30 years, official data showed Thursday, pushed up by rising energy costs and supply bottlenecks.
The consumer price index (CPI) rose by 5.3% year-over-year, the highest reading since June 1992, and marked a further acceleration in price pressures after 5.2% in November, the German Federal Statistics Office said in preliminary figures.
Over the whole of 2021, inflation came in at 3.1%, the highest year-end figure since 1993. It was up from 0.5% in 2020.
The reading from Germany, the biggest eurozone economy, may indicate that inflation across the bloc peaked in November at a record 4.9%. The first estimate of December eurozone inflation is due for release on Friday.
The central bank last month raised its 2022 inflation forecast for Germany to 3.6% from 1.8% seen last June and predicted a rate of 2.2% for both 2023 and 2024 – all rates above the European Central Bank’s (ECB) inflation target of 2%.
The acceleration had a “number of reasons,” the statistics office said, including higher costs for energy, supply chain disruptions due to the pandemic and a temporary value-added tax (VAT) cut in 2020, which lowers the base against which current price rises are measured.
The December inflation reading was the last to factor in the tax holiday, introduced to mitigate the impact of COVID-19 lockdowns on the economy.
The question that arose was whether inflation had reached its “summit” or if there would be a “further, hitherto unexpected rise,” said Fritzi Koehler-Geib, chief economist at the public lender KfW.
“Both are conceivable. There is much to suggest that price growth will cool off as a result of the elimination of base effects,” while it remains “uncertain” how quickly bottlenecks or energy price rises would ease.
Gas prices have surged in Europe in recent months as demand has soared with economies emerging from their COVID-19-induced restrictions.
The spike has been further fueled by geopolitical tensions surrounding Russia, which supplies one-third of Europe’s gas.
Western countries accuse Russia of limiting gas deliveries to put pressure on Europe amid tensions over the Ukraine conflict to push through regulatory approval for the controversial Nord Stream 2 pipeline set to ship gas to Germany.
German government officials and policymakers at the central bank expect inflation to ease in the coming months as transitory effects, such as the temporary VAT cut, should wane from January onwards.
