German inflation hits 29-year high but ECB urges patience

Energy prices jumped 23.5 percent in the eurozone last month
AFP

German consumer prices hit a 29-year high in November, preliminary data showed Monday, but European Central Bank chief Christine Lagarde warned that tightening monetary policy too early would hurt the region’s recovery.

The annual inflation rate in Europe’s top economy rose to 5.2 percent, federal statistics agency Destatis said, driven by soaring energy costs and supply chain bottlenecks.

Energy prices alone saw a 22-percent jump in November.

In October, inflation had accelerated by 4.5 percent year-on-year.

High demand after the easing of coronavirus restrictions has pushed up energy prices and led to shortages of key materials and labour around the world.

German inflation also suffers from the comparison effect with 2020, when the country brought in a temporary sales tax cut, as well as the introduction of CO2 pricing at the start of 2021, according to Destatis.

The higher cost-of-living is being experienced across the eurozone at the moment, putting pressure on the European Central Bank to scale back stimulus and consider raising interest rates earlier than planned.

But the ECB has so far insisted that the inflation surge in the 19-nation zone is transitory, and is wary of acting too soon and potentially stifling the pandemic recovery.

“If we tightened monetary policy now, that would not add a single container ship or truck driver,” Lagarde said in an interview with Germany’s Sueddeutsche newspaper.

The current supply chain woes and shortages will ease over time, she said, with the ECB estimating that inflation will start to fall back next year.

But Germany’s Bundesbank central bank chief Jens Weidmann, who is stepping down at the end of the year, has been critical of the ECB’s call for patience, warning that the price hikes could last longer than expected.

Using the ECB’s preferred yardstick, the Harmonised Index of Consumer Prices (HICP), German inflation jumped to six percent in November — well above the bank’s two-percent target.

Carsten Brzeski, economist at ING Diba bank, called November’s inflation figure “a shocker” but said the peak had yet to come.

“The December inflation number could be a new record high since German reunification,” he said.

“One-off factors like base effects from higher energy prices and post-lockdown price mark-ups” will “gradually start to abate”, he added.

“However, it could take until the end of 2022 before headline inflation will drop below two percent, if not until 2023.”

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