German inflation: Producer price rises highest since 1949

By newsknocking Last updated Apr 20, 2022

German annual producer price inflation topped 30% in March, the country’s Federal Statistics Office said on Wednesday. That’s its highest level since the agency began collecting data 73 years ago.

The biggest culprit? Energy prices, which rose nearly 84% from the same month last year.

“Mainly responsible for the high rise of energy prices were the strong price increases of natural gas… which was [up] 144.8% on March 2021,” the statistics office said in a statement.

It is one of first signs of the huge impact Russia’s invasion of Ukraine is having on the German economy, Europe’s biggest. Producer prices rose by nearly 5% between February and March alone.

Consumers should brace themselves. Factory gate inflation feeds into retail prices, and shoppers can expect to spend more on everything from furniture to meat, according to Wednesday’s figures.

German consumer price inflation is already at a 41-year high, hitting 7.3% last month. Energy prices were the main contributor, up almost 40% from the previous month.

Global energy prices were rising before Russian President Vladimir Putin ordered the invasion. As economies began to reopen from their pandemic lockdowns, demand for fuel surged and wholesale prices shot up.

But Western sanctions on Russia’s coal and oil exports — and efforts by the European Union to slash consumption of its natural gas — have pushed prices up even further.

Germany has so far resisted an embargo on natural gas, and with good reason. According to the International Energy Agency, the country relies on Russia for about 46% of its consumption. An abrupt break with its biggest supplier would likely trigger rationing and inflict severe damage on its energy-intensive manufacturing sector.

Economy Minister Robert Habeck has already warned Germans that they “will be poorer” as a result of the war.

“It is not possible that this ends without costs for German society, it is unthinkable,” he said last month.

Soaring prices have rattled a country that has long prided itself on its stable economy, and that still carries a deep-rooted fear of the kind of hyperinflation of the 1920s and 1930s that is widely thought to have helped the Nazi party rise to power.

The European Central Bank has yet to raise interest rates to tame spiraling prices, unlike its counterparts in the United States and United Kingdom, and has resisted calls to specify a date when it will.

ECB President Christine Lagarde said last week she needed to keep her options open, given the uncertain outlook for the region’s economy, and reiterated that the bank would only raise the cost of borrowing after it winds down its purchases of government bonds at some point in the third quarter.

A German manufacturer, Henkel (HENKY), announced on Wednesday that it would cease operations in Russia. The $25 billion chemical and consumer goods giant said it would continue to pay its 2,500 workers in the country. The maker of Persil detergent did not say what financial impact its exit would have.

— Mitchell McCluskey contributed reporting.

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