After inflation jumped over the five percent mark again, people in Germany have to brace themselves for further increases in consumer prices because of the war in the Ukraine. In February, the rate of inflation, fueled by high energy prices, was 5.1 percent according to an initial estimate by the Federal Statistical Office. Economists expect a further increase in the coming months, some consider inflation rates in the direction of six percent possible.
In January 2022, consumer prices rose by 4.9 percent year-on-year. In December 2021, the annual inflation rate was 5.3 percent.
Household energy and fuel rose by 22.5 percent within a year to February. Sebastian Dullien from the Institute for Macroeconomics and Business Cycle Research (IMK) of the trade union Hans Böckler Foundation explained that energy prices had already risen before the Russian invasion of Ukraine due to concerns about an escalation of the conflict.
Rising commodity prices
According to the automobile club ADAC, a visit to the gas station at the end of February was more expensive than ever before. For a liter of Super E10, drivers had to pay 1.816 euros on Monday. A liter of diesel cost an average of 1.737 euros per day. It’s been six to seven cents more since the Russian attack began last Thursday.
“Due to the Russian invasion of Ukraine, hopes of a significant drop in inflation over the course of the year have further diminished,” said ZEW expert Friedrich Heinemann. “The surge in prices for energy, raw materials and grain triggered by the war will further fuel the already high price dynamics.”
Rising raw material prices are not only noticeable when filling up or heating, but also increasingly for other products, because manufacturers usually pass on higher purchase prices in whole or in part.
Material shortages and delivery bottlenecks
The retail trade therefore considers higher prices at the tills to be possible. An accelerated rise in energy prices “would affect companies along the entire value chain from agriculture and manufacturing to retail and ultimately also result in higher consumer prices,” said the German Trade Association.
In addition, there is a persistent shortage of materials and delivery bottlenecks. “Supply cannot keep up with demand in many areas, so scarce goods are becoming more expensive,” explained Jörg Zeuner, chief economist at fund provider Union Investment. Inflation rates in the direction of six percent are also conceivable in March and April.
According to Commerzbank chief economist Jörg Krämer, the inflation rate in Europe’s largest economy should clearly exceed the 5.5 percent mark in March if the energy prices, which have risen due to the Ukraine war, remain at the current level.
Energy prices, which initially rose as part of the global economic recovery, have been driving inflation in Europe for months. In response, the governing coalition decided on a relief package. From July onwards, citizens should no longer pay the green electricity surcharge. A higher flat rate of 38 cents is planned for commuters from the 21st kilometer retrospectively to the beginning of the year. Whether the measures are sufficient is controversial.
indicator for monetary policy
At the same time, according to Federal Economics Minister Robert Habeck, the EU and the USA are examining the use of national oil reserves as a reaction to the Ukraine war and rising prices. “We are considering using the national oil reserves in a concerted action together with the Americans in such a way that prices are dampened if they continue to rise,” said the Green politician on Monday evening.
Inflation is an important indicator for the monetary policy of the European Central Bank (ECB). The central bank is aiming for an annual inflation rate of 2 percent in the euro area and is at least temporarily willing to accept a moderate overshoot or undershoot. In February, the harmonized index of consumer prices (HICP), which is decisive for the ECB’s monetary policy, was 5.5 percent above the level of the same month last year.
Even among Europe’s currency watchdogs, there is now agreement that one cannot sit out the stubbornly high inflation. The European Central Bank (ECB) could take countermeasures by raising interest rates. However, the war in Ukraine is making it difficult for the central bank to decide on the further course, which is to be set at the next monetary policy meeting on March 10th. (dpa)