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German Inflation Surges To 7.3%, Highest Since 1981

Germany’s consumer price inflation jumped to its highest level in over four decades in March as the Russia-Ukraine war led to a surge in energy prices.

The consumer price index rose 7.3 percent year-on-year, after a 5.1 percent increase in February, preliminary data from Destatis showed Wednesday. Economists had forecast a 6.3 percent inflation. “Since Russia’s attack on Ukraine, the prices of natural gas and mineral oil products have markedly increased again and have had a considerable impact on the high rate of inflation,” Destatis said.

“A similarly high inflation rate in Germany was last recorded in autumn 1981 when mineral oil prices had sharply increased, too, as a consequence of the first Gulf war.”

Energy prices surged 39.5 percent annually after a 22.5 percent increase in the previous month. Food inflation accelerated to 6.2 percent from 5.3 percent.

Services costs rose 2.8 percent, same as in the previous month and rents grew at a stable pace of 1.5 percent. Compared to the previous month, the CPI increased 2.5 percent in March, following a 0.9 percent rise in February. Economists were looking for a 1.6 percent increase. Annual inflation based on the harmonized index of consumer prices, or HICP, climbed to a record 7.6 percent from 5.5 percent in the previous month. Economists had forecast 6.7 percent price growth.

The monthly increase in the EU measure of inflation accelerated to 2.5 percent from 0.9 percent, much faster than the 1.8 percent economists had forecast.

“The bad news is that this will not be the end of accelerating inflation,” ING economist Carsten Brzeski said.

“For inflation, the only way is up and double-digit numbers can no longer be excluded.”

Official figures released on Wednesday showed that headline inflation hit 9.8 percent in Spain, the highest since 1985, and 8.31 percent in Belgium, the fastest since 1983. Escalating inflationary pressures in the biggest euro area economy and across the region is set to add more pressure on the European Central Bank to tighten policy. ECB President Christine Lagarde said on Wednesday that the Russia-Ukraine war has introduced considerable uncertainty into the outlook for the Eurozone economy. Speaking in Cyprus, Lagarde said the economic impact of the war has resulted in a “supply shock” that simultaneously pushes up inflation and reduces growth.

“The best way that monetary policy can navigate this uncertainty is to emphasize the principles of optionality, gradualism and flexibility,” the ECB chief said.

Energy prices are expected to stay higher for longer, the pressure on food inflation is likely to increase and manufacturing bottlenecks are set to persist, she added.

Earlier on Wednesday, the German government took steps to rationing gas supplies as deliveries from Russia are expected to halt over price disputes. The government urged households and businesses to reduce energy consumption in a bid to lower the dependence on Russian gas supplies.

Elsewhere, the German government panel of economic experts slashed the economic growth forecast for this year to 1.8 percent from 4.6 percent predicted in November.

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