German inflation hits double digits for first time in euro era

GERMAN inflation reached double digits for the first time since the euro was introduced more than 20 years ago, surging more than anticipated after temporary government-relief measures ended and Europe’s energy crisis worsened.

Consumer prices jumped 10.9 per cent from a year ago in September, topping August’s 8.8 per cent advance, the Federal Statistics Office said on Thursday (Sep 29). That is more than the 10.2 per cent that economists in a Bloomberg survey had estimated. 

A spike in inflation was expected as Germany wound down summer discounts on public transport and fuel. But the scale of the acceleration will trouble the European Central Bank (ECB), which is struggling to tame soaring prices whose persistent ascent is set to break another record when data are released on Friday. 

The German government on Thursday announced it would put a lid on petrol prices, a move that could tame inflation readings to come. Chancellor Olaf Scholz’s administration will borrow at least 150 billion euros (S$209.3 billion) for the initiative, said people familiar with the matter.

Germany’s inflation number raises the risk of an overshoot to the 9.7 per cent median estimate for the eurozone in a Bloomberg survey of economists – despite Spain surprising earlier on Thursday by reporting a steeper-than-expected September slowdown.

Either way, ECB officials are already lining up another hefty boost to interest rates following a historic 75 basis point hike this month that mirrored action by the Federal Reserve.

President Christine Lagarde has said there will be increases at the next several meetings, with vice-president Luis de Guindos saying on Thursday that policymakers must do “whatever it takes” to tame inflation. 

The 3 Governing Council members from the Baltic region, where price growth has shot beyond 20 per cent, all favour a repeat of September’s three-quarter-point move on Oct 27. Their ECB colleagues from Austria, Slovakia and Slovenia think similarly. Money markets currently price a 60 per cent chance of the deposit rate being lifted to 1.5 per cent from 0.75 per cent now. 

“The next step still has to be big because we are still far away from rates that are consistent with 2 per cent inflation,” Latvia’s Martins Kazaks said on Wednesday in an interview in Vilnius. “Let’s take a bigger step and move the rates up.”

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The ECB’s efforts are complicated by a rapidly deteriorating outlook for the 19-nation euro area as Russia further squeezes energy supplies before the winter to push back against Western sanctions over its war in Ukraine.

Analysts increasingly predict a euro-zone recession as the cost-of-living crisis bites, with data Thursday showing confidence plunging to levels last seen during the pandemic. 

A downturn in Germany, meanwhile, is all but certain. Leading research institutes in Europe’s largest economy slashed their forecasts earlier in the day, predicting a 0.4 per cent decline in output next year. That is even as they see inflation gathering pace – averaging 8.8 per cent in 2023 compared with 8.4 per cent this year.

Before today’s petrol-price-cap annoucement, the government had sought to offset the impact on consumers and businesses with aid packages totaling almost 100 billion euros. BLOOMBERG