Germany: Inflation reaches a new record in May, at 7.9% over one year

Posted 30 May, 2022

Inflation in Germany hit another record in May, at 7.9% year on year, pushed by the war in Ukraine, which is increasing energy and food prices, further putting the European Central Bank under pressure, according to provisional figures released on Monday.

The indicator gained 0.5 points compared to April, and thus climbed to its highest level since the reunification of the country in 1990. To find such a high inflation figure, you have to go back to January 1952, to the West German era.

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

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

The President of the ECB, Christine Lagarde, recently announced that she wanted to raise rates from July, and plans to leave negative rates “by the end of the third quarter”.

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

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

The surge in prices is mainly linked to an increase in energy tariffs caused by the war in Ukraine, which "strongly influenced the high inflation rates", comments Destatis.

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%, after 35.3% in April and 39.5% in March

The war also increases the cost of foodstuffs: in May, it jumped by 11.1%, after 8.6% in April, and 6.2% in March.

Finally, the shortages of components and raw materials which have slowed down the economy since the coronavirus pandemic have been reinforced with the sanctions against Russia and production stoppages in Ukraine, which supplies the German automotive sector, among other things.

This is in addition to the restrictive measures against the coronavirus pandemic in China also strongly disturbing the international markets.

German industry passes these costs on to consumers: the prices of goods rose by 13.6%.

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