German inflation rises to 28-year high of 4.5%

[BERLIN] German consumer prices rose at their fastest pace since 1993 in October on the back of higher energy prices, official data showed on Thursday (Oct 28).

The annual inflation rate accelerated for the fourth month in a row, reaching 4.5 per cent in October, with energy prices soaring by 18.6 per cent, according to first estimates from the federal statistics agency Destatis.

In September, prices had risen in Europe's biggest economy by 4.1 per cent year on year.

"There are a number of reasons for the high inflation rates since July 2021," the agency said in a statement, citing a temporary reduction in value added tax (VAT) in 2020 and the introduction of CO2 pricing since January 2021.

It also blamed "significant price increases at the upstream economic levels".

Gas prices have surged in Europe in recent months as demand has soared with economies emerging from Covid-induced restrictions.

Official estimates published on Wednesday showed the German government expects inflation to rise to 3 per cent in 2021 before subsiding over the next years.

The forecast increase in 2021 overall would be the highest since 1993, when inflation was 4.5 per cent.

Inflation would subsequently fall to 2.2 per cent in 2022 and 1.7 per cent in 2023, the German government predicted.

Germany introduced a temporary VAT reduction in 2020 to mitigate the impact of Covid-19 lockdowns on the economy, lowering the base against which current price rises are measured.

Jens-Oliver Niklasch, a senior economist at LBBW bank, said this was responsible for "a considerable part" of the price surge.

However, he added: "Does that mean we can sit back and relax? Unfortunately, no.

"The strong increases in import and producer prices lead us to expect that inflation will remain higher next year than in the years before the pandemic."

AFP