German Inflation Climbs Above 5%

germany feb14 29nov21 lt

Germany's consumer price inflation accelerated more than expected in November, preliminary figures from Destatis showed Monday.

The consumer price index rose 5.2 percent year-on-year following a 4.5 percent increase in October. Economists had forecast 5.0 percent inflation.

The record high of CPI inflation for Germany is 6.2 percent logged in 1992.

Compared to the previous month, the CPI decreased 0.2 percent from November after a 0.5 percent rise in October. Economists had forecast a 0.4 percent fall.

The harmonized index of consumer price, or HICP, rose 6.0 percent year-on-year following a 4.6 percent climb in the previous month. Economists were looking for a 5.5 percent increase.

The EU measure of inflation rose 0.3 percent from the previous month, when it climbed 0.5 percent. Economists were looking for a 0.3 percent fall.

There are a number of reasons for the high inflation rates since July this year, which include base effects due to low prices in 2020, Destatis said.

In this context, especially the temporary value added tax reduction and the sharp decline in mineral oil product prices had an upward effect on the overall inflation rate, the agency added.

Energy inflation surged to 22.1 percent from 18.6 percent and food price growth rose to 4.5 percent from 4.4 percent.

Services cost inflation climbed to 2.8 percent from 2.4 percent.

The December inflation number could be a new record high since German reunification, ING economist Carsten Brzeski said.

Higher inflation together with new virus-related restrictions are likely to dent private consumption towards the end of the year and into early 2022 as the announced and expected wage increases will not be able to offset the loss in purchasing power, the economist added.

The base effect from the VAT reversal will disappear in coming months and that alone should bring headline inflation down by more than 1 percentage point.

"However, it could take until the end of 2022 before headline inflation will drop below 2 percent, if not until 2023," Brzeski added.

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