Record rise in German producer prices adds to pessimistic outlook

BERLIN—German producer prices rose at their fastest pace on record in July, underscoring the bleak outlook for Europe’s largest economy, which is beset by rising costs and weakening growth from the Ukraine war. .

Producer prices, a leading indicator of inflation, rose 37.2% year-to-date, the biggest increase since records began in 1949, according to the Federal Statistical Office. The rate of increase of 5.3% m/m also hit a record high.

“Prospects for further development [of the economy] The Treasury Department said in its monthly report for August released on Friday that there was “high uncertainty”.

The record rise in producer prices was largely due to higher energy prices, which overall rose by 105% compared to the same month last year, the Secretariat said.

The German economy stagnated in the second quarter and was pushed to the brink of recession by the war in Ukraine, high energy prices, the COVID-19 pandemic and supply disruptions.

“A longer-than-expected supply chain disruption in connection with a significant reduction in gas supplies from Russia, persistently high energy prices, rising prices of other commodities, and China’s zero-coronavirus policy. It weighs heavily on economic development,” the finance ministry said.

Adding to already high energy costs, the German government will impose a tax on gas consumers from October 1, adding hundreds of euros to the average household’s annual utility bills. To soften the blow, the excise tax on gas will be cut from 19 percent to 7 percent while the tax is in place.

Rising energy prices mean inflation is unlikely to subside anytime soon. Germany’s annual inflation rate was 8.5% in July, matching the record 8.9% for the entire Eurozone.

Experts expect inflation in Germany could reach around 9% after relief measures such as public transport price cuts and fuel tax cuts end at the end of August.

Commerzbank economist Ralph Solveen said it was a time when inflation was likely to peak. But wage increases expected next year are likely to continue pushing interest rates higher, and “businesses are likely to pass these costs on to their customers.”

In April, the German government predicted 6.1% inflation for 2022. The Ministry of Finance said the latest economic forecast will be released on October 12th.

Miranda Murray and Paul Carell