German central bank sees inflation at 5% in 2022

[FRANKFURT] The German central bank said on Wednesday (Mar 2) inflation in Europe's largest economy could average 5 per cent this year, as the conflict in Ukraine drives prices for energy even higher.

Bundesbank experts "now believe that the inflation rate could reach 5 per cent on average for the year", its president Joachim Nagel said in a statement.

The figure is well above the government's expected rate of 3.3 per cent inflation in 2022 and would represent a 30-year high for the traditionally inflation-wary country.

The pace of price rises picked up again in Germany in February to 5.1 per cent, according to figures from the federal statistics agency Destatis published on Tuesday.

The rise was driven by the soaring cost of energy, an issue aggravated by the invasion of Ukraine by Russia, a major supplier of gas and oil to European countries.

Currently, it is "not possible to reliably estimate" the impact the conflict will have on the economy in Germany, Nagel said.

"What is clear is that a further surge in energy prices will also affect consumer prices," Nagel said.

The rate of inflation in Europe's export giant will have a significant bearing on the result for the eurozone, with pressure already growing on the European Central Bank (ECB) to tighten its monetary policy.

The ECB has started a "step-by-step" reduction in its bond-buying programme, its main crisis-fighting tool through the pandemic, while its interest rates sit at historic lows, including a negative overnight deposit rate that effectively charges banks to park their cash overnight.

Inflation in the euro area hit a new all-time high of 5.8 per cent in February, according to figures published on Wednesday.

The likelihood of high eurozone inflation, said Nagel who sits on the ECB's governing council, means that policymakers "need to keep our sights trained on the normalisation of our monetary policy".

The council will meet again on Mar 10 to decide on any policy adjustments. AFP