German inflation accelerated to a 40-year high of 8.8 percent in the year to August, reinforcing calls for the European Central Bank to accelerate the pace of rate hikes when its policymakers meet next week.
Consumer prices in Europe’s largest economy were mainly driven by rising energy and food costs, pushing inflation up 0.4 percentage point from July, despite recent government measures to cushion the blow to households.
The figures supported calls from ECB board members for the bank to become more aggressive in its policy response to the rise in inflation, which has reached its highest level since the introduction of the euro 23 years ago and is expected to accelerate further in August.
Some, such as Austrian central bank chief Robert Holzmann, have publicly called on the ECB to discuss the pace of rate hikes at next week’s meeting, from an initial rise of half a percentage point in July to a rise of three quarters of a point.
The fallout from the Russian invasion of Ukraine has pushed wholesale gas and electricity prices in Europe to record levels in recent weeks, and the costs of fertilizers and other agricultural commodities such as wheat have soared.
In August, German energy prices rose by 35.6 percent and food prices by 16.6 percent. Core inflation, excluding food and energy, rose to 3.1 percent, from 2.8 percent in July.
Some ECB rate setters are concerned that the inflation shock caused by the war disruption in Ukraine has been exacerbated by the demand shock following the reopening of European economies as coronavirus restrictions were lifted earlier this year.
“The economy has held up well and some of the factors that helped in the second quarter are likely to carry over into the third quarter,” Klaas Knot, the governor of the Dutch central bank, said at an event in Copenhagen hosted by Danske Bank. on Tuesday.
“The broadening and deepening of our inflation problem calls for strong action,” Knot said, adding that he expected the ECB to begin shrinking its balance sheet by the end of this year, and the issue is likely to be on the agenda in October. stand. or Dec.
German inflation continued to rise despite government measures including lower excise duties on fuel and energy and a €9 monthly subsidized train ticket. Many of the measures will expire in September, which means that inflation is likely to rise even higher.
Joachim Nagel, head of Germany’s central bank, recently warned that inflation in the country was likely to rise double-digit this year for the first time since 1951 and predicted prices would rise by at least 6 percent next year.
Recent business surveys indicate that supply bottlenecks for businesses have been easing for several months now, with many reporting rising inventories of unsold products due to declining orders.
But Carsten Brzeski, head of macro research at ING, said this didn’t mean inflation was going to fall. “Even if pricing power in both industry and services appears to have peaked, we still expect the pass-through of higher costs to continue for a few more months,” he said.
German inflation data – coupled with a jump in Belgian inflation to a 46-year high of 9.9 percent in August – bolstered expectations that overall price growth in the eurozone is likely to hit a record high of at least 9 percent when the data is updated. released on Wednesday.
However, Spain’s statistical office said inflation there fell slightly to 10.3 percent in August, despite the price of electricity, food, dining out and package holidays rising at a “remarkable” pace. Spanish core inflation — excluding unprocessed food and energy prices — rose 6.4 percent in the year to August, the fastest pace since January 1993, the report said.