German inflation continues to pick up pace

Belgium, (Brussels Morning Newspaper) Inflation in Germany continued to pick up pace in February according to preliminary data from the Federal Statistical Office (Destatis).

Annual inflation stood at 9.3% in February, up from 9.2% in January, exceeding analysts’ expectations of 9%, according to Reuters reporting on Wednesday.

Destatis noted that consumer prices increased 1% compared to January and added that energy and food prices are the main drivers of inflation.

Despite the government’s interventions, energy prices in Germany increased 19.1% annually in February and food prices increased 21.8%.

Ralph Solveen, the economic researcher at Commerzbank, noted that core inflation rose from 5.6% to an estimated 5.8%.

“Although the inflation rate may fall in the coming months because energy prices are unlikely to rise as strongly as they did in spring 2022, this does not mean that inflation is over,” he warned.

Another wave expected

Jörg Krämer, the Commerzbank chief economist, noted that the first wave of inflation was caused by energy prices, followed by the second wave caused by material inputs.

He predicted that a third wave will hit in the coming period, driven by the growth of wages.

The report on rising German inflation came one day after France and Spain posted rises.

Greg Fuzesi, the JPMorgan eurozone economist, noted that continued growth of inflation “clearly biases the risk to another 50 bp hike in May, after the well-telegraphed 50 bp in March.”

He pointed out that the European Central Bank (ECB) could keep upping interest rates in increments of 50 basis points rather than slowing down to 25, “which would also push the terminal rate higher.”

In the period since July last year, the ECB upped interest rates by 300 basis points and announced it would implement another hike in March.

While some ECB Governing Council members called for softening the bank’s approach to inflation, German Federal Bank head Joachim Nagel pushed back on Wednesday.

He pointed out that the recent decline in energy prices may help to lower inflation in the short term, but would not have an effect in the medium term, warning that inflation could become entrenched above ECB’s target of 2%.

“The interest rate step announced for March will not be the last,” Nagel stressed and concluded, “further significant interest rate steps might even be necessary afterward.”