German producer prices soar as Deutsche Bundesbank warns economy


Berlin — Germany’s producer prices rise in January at the fastest rate since the beginning of modern records, soaring 25% and continuing to rise, potentially exposing businesses to financial stress and consumer inflation. there is.

The Federal Bureau of Statistics on Monday showed that most of the rise was due to the surge in energy costs. BDI industry groups said they threatened to hinder the economy, which said the country’s central bank was probably shrinking, due to the increased absence of workers due to the coronavirus.

The sharp rise in factory gate costs, considered a leading indicator of consumer prices, was the largest since 1949, when West Germany and East Germany were established and the country’s post-war economic data series began.

Analysts polled by Reuters expected the December 24.2 percent figure to repeat. In October and November, sharp increases of 18.4% and 19.2% were recorded, respectively.

Ralph Solbean, an economist at Commerzbank, suggests that the continuous surge in PPI indicators that took place before the product was further processed or sold suggests that “pressure in the inflation pipeline is still high.” ..

“Germany’s (consumer) inflation rate is expected to be around 5% in the fall,” he added, one point higher than the 2022 Ifo Institute of Economic Research’s average forecast.

LBBW analyst Jens-Oliver Niklasch agreed that “retailers are likely to pass on at least part of this (PPI pressure) to end consumers.”

Separately, the Deutsche Bundesbank warned of parallel pressures on economic activity by COVID-19, and a new wave of infections that would make many non-functional will result in gross domestic product from January to March 2 He said it could shrink for the quarter in a row.

“Unlike previous waves, it’s not just the activities of the services sector that are likely to be affected by containment measures and behavioral changes,” the German central bank wrote in a monthly report, predicting a spring recovery. did.

“Instead, pandemic-related absenteeism can significantly weaken economic activity in other sectors as well.”

ECB dilemma

The economic patterns of the eurozone’s largest economy have been replicated elsewhere in the single currency area, smoothly towards the consumer inflation target of 2% during high but volatile price pressures and headwinds. It complicates the European Central Bank’s task of migrating. growth.

ecb.headquarters
The skyline, home to the Bank Street and the headquarters of the European Central Bank (ECB), was shot on October 4, 2021 in Frankfurt, Germany. (KaiPfaffenbach / Reuters)

The ECB will open its doors to rate hikes for the first time in 2022 this month and will decide in March how soon it will end its bond purchase scheme, which is at the heart of monetary stimulus.

According to the Statistics Bureau, in January Germany, temporary factors, especially energy costs, still distort long-term inflation trends upwards.

BDI said on Monday that these costs, which are showing no signs of decline, could cripple the economy and take government action to ensure that German companies remain globally competitive. I asked.

In a survey of more than 400 companies, nearly two-thirds said rising energy costs were a major challenge, and nearly a quarter said they threatened their existence.

Eliminating energy costs, German producer prices rose 12% in January.

Reuters

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