German central bank warns of unprecedented inflation

Energy shortage, caused by cut gas supplies from Russia, could push prices up 10%, warns Bundesbank chief

Germany is on the verge of its highest inflation in decades, its central bank president Joachim Nagel told the Rheinische Post on Saturday, adding that the country could slide into recession.

“An inflation rate of even 10% is possible during the autumn months”, Nagel told the newspaper, adding that the latest spike in energy prices caused by reduced supplies from Russia – Germany’s main supplier – is likely to drive up consumer prices even further.

“Double-digit inflation rates were last measured in Germany over 70 years ago,” added the President of the Bundesbank. The country experienced a similar level of inflation in 1951, when it hit 11%, according to calculations made at the time, according to German media.

The situation of the national economy is also expected to remain tight next year, Nagel warned, adding that “the question of inflation will not disappear in 2023” since “Supply bottlenecks and geopolitical tensions are expected to persist.” 

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Inflation is expected to beat the Bundesbank’s June forecast by 4.5 points and average 6% “before the comma next year”, he added.

Natural gas and electricity prices have already risen more than expected, Nagel noted. Reduced gas imports from Russia, which came during an extreme heat wave in Europe that led to lower water levels in major European rivers and hampered river transport, could severely affect the German economy , he warned.

“As the energy crisis deepens, a recession looks likely next winter,” predicts the head of the Bundesbank.

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According to the Financial Times, prices charged by German industrial producers increased by 37.2% between July 2021 and July 2022. The German Federal Statistical Office called it the highest increase ever, adds the log.

Nagel’s prediction comes as Germany faces a major energy crisis. Russia’s gas supplies are steadily dwindling due to technical issues stemming from Ukraine-related sanctions. Russian energy giant Gazprom said on Friday it would halt gas transit through the Nord Stream 1 pipeline for three-day maintenance work between Aug. 31 and Sept. 2.

Gas supply to the EU via Nord Stream 1 had already fallen to 20% of the maximum level last month. According to Gazprom, five turbines have to work to pump gas at full capacity, and most of them need overhauling. One of the turbines is currently stuck in Germany due to sanctions, after returning from repair work in Canada.

Friday’s announcement led to a further rise in the price of gas in Europe, with prices jumping 7% to above $2,600 per thousand cubic meters.


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