Germany inflation hits record high 10%, likely to move into recession

Key Takeaways

  • Germany’s consumer price inflation spiked to 10.0% in September from 7.9% in August. 
  • Germany is facing skyrocketing energy prices after Russia shut off crucial fossil fuel supplies following the Ukraine invasion.
  • European Central Bank likely to raise its benchmark rates by outsized three-quarters of a percentage point at its next meeting

Countries worldwide are battling inflation, and Germany is not safe from it. Germany’s consumer price inflation spiked to 10.0% in September from 7.9% in August. This is the highest inflation rate in over three decades. Notably, Germany’s inflation has remained above 7% for seven months.

The European country’s energy rates also accelerated by 43.9% from 2021 owing to the Russian invasion of Ukraine and the subsequent supply bottlenecks. The Government forecasts that Germany’s output will contract by 0.4% next year, and inflation is expected to hit 7%. “We are currently experiencing a serious energy crisis, which threatens to become an economic and social crisis,” warned Economy Minister Robert Habeck.

Commenting on the high inflation rate, Georg Thiel—President of the Federal Statistical Office—said, “The main reasons for the high inflation are still enormous price increases for energy products. But we are also increasingly seeing price increases for many other goods, especially food. In addition, the expiry of the 9-euro ticket and the fuel discount increased the price increase in September 2022.”

The inflation announcement follows a forecast by a leading group of think tanks earlier that stated the crisis in the gas markets, spiraling energy prices coupled with a massive drop in purchasing power would push the German economy into recession.

The country’s central bank, the Bundesbank, has also presented the possibility of Germany’s GDP declining in the approaching fourth quarter of 2022 and the first quarter of 2023 has increased considerably owing to “unfavorable developments in the gas market”.

The country recently unveiled a €200 billion fund to shield consumers and businesses from surging prices, which includes a cap on energy costs. As per predictions, the German economy is expected to return to growth with an expansion of 2.3% in 2024.

Germany’s inflation rate is likely to pressure the European Central Bank to continue tightening monetary policy. Eurozone inflation also hit a new record high of 10%, up from 9.1% in August and above consensus projections of 9.7%.

As per Jessica Hinds, senior Europe economist at Capital Economics, the central bank’s rate-setting council will likely raise its benchmark rates by outsized three-quarters of a percentage point at its next meeting on October 27. If European Central Bank increases its interest rates, even more, it will weaken the case for a bullish revival in risk assets, including cryptocurrencies.

Saniya Raahath
Saniya Raahath

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