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Bundesbank: Inflation in Germany likely to remain “extraordinarily high”

2022-01-24T13:33:05.005Z


In their first report of the year, the Bundesbank's economists gave little hope of a rapid decline in inflation. The central bank also wants to focus more closely on the effects of climate change.


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Bundesbank headquarters in Frankfurt am Main: German economic output fell in the final quarter of 2021

Photo: Arne Dedert/ picture alliance/dpa

At the start of the year, the Bundesbank expects prices to remain under extremely high pressure.

The inflation rate "is likely to remain extraordinarily high," the German central bank warned in its monthly report presented on Monday.

This is becoming apparent, although several special effects that contributed to the upward trend in prices last year were eliminated.

Among other things, the Bundesbank includes the introduction of the climate package and the reversal of the temporary reduction in VAT rates. In addition, services and non-energy industrial goods rose sharply in price at times in 2021, mainly due to supply bottlenecks and price increases to compensate for previously suffered profit losses: These factors would now also “effect into the new year”, according to the Bundesbank economists: “In addition, that due to the significant increase in market prices for natural gas, the corresponding end customer tariffs will be raised sharply.«

In December 2021, consumer prices rose by 5.3 percent, the strongest since 1992.

In his appointment speech at the beginning of January, the new chief economist at the Bundesbank, Joachim Nagel, warned "that the inflation rate could remain elevated for longer than currently expected".

Monetary policy must "be on the alert in any case."

In 2021, inflation had jumped to 3.1 percent.

A higher annual rate was last determined almost 30 years ago - in 1993 with 4.5 percent at that time.

According to a forecast by the Munich ifo Institute, it should be over four percent in the coming months and only gradually approach the two percent mark towards the end of 2022.

Economic output probably contracted in the last quarter of 2021

In addition, the economists suspect a slight decline in German economic output at the end of 2021. Real gross domestic product (GDP) is likely to have "dropped somewhat" in the final quarter, the report said.

The main reason for this is the renewed increase in the pandemic.

As a result, the service sector was in some cases significantly affected, particularly in December.

The preliminary GDP data for the fourth quarter will be released on Friday.

In a first rough estimate, the Federal Statistical Office had estimated a decline of 0.5 to 1.0 percent.

Climate change more in focus

In future, the Bundesbank intends to focus more on the climate issue in its analyses.

»Climate change and climate policy influence overall economic development and can affect price and financial stability.

This can make it more difficult to fulfill central bank tasks,” the paper continued.

»For example, physical risks such as the increase in average temperatures or the frequency of extreme weather events can weaken overall economic growth in the long term.« In this context, the question also arises as to what effects increasing global warming will have on economic development in Germany, »if not in good time and in a sustainable manner counteracted".

Among other things, climate-related changes are likely to play an important role on the financial markets in the future, write the Bundesbank experts.

The hard-hit companies included the coal, steel and cement industries, as well as airlines.

The manufacturing industry and services, on the other hand, were rather weakly affected.

"In particular, it is to be expected that companies will be reassessed according to their ecological footprint and their cost-effectiveness," write the experts.

Sol/dpa/Reuters

Source: spiegel

All business articles on 2022-01-24

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