German inflation hits 40-year record, fuelled by high energy prices

"Energy prices, in particular, have increased considerably since the war started in Ukraine" with a knock-on impact for inflation, the federal statistics agency Destatis said in a statement. [nikkytok / Shutterstock]

Inflation in Germany rose at its fastest pace in four decades, data published Thursday (28 April) showed, as Russia’s invasion of Ukraine pushed up energy prices.

Consumer prices were 7.4% higher in April compared to a year ago, according to the federal statistics agency Destatis. In March, the corresponding figure reached 7.3%.

“Energy prices, in particular, have increased considerably since the war started in Ukraine” with a knock-on impact for inflation, Destatis said in a statement.

The last time prices rose at a faster pace was for West Germany in the autumn of 1981, as the Iran-Iraq War caused oil prices to increase sharply.

Germany, like many of its European neighbours, is highly dependent on supplies of Russian gas to meet its energy needs.

The outbreak of the conflict sent prices soaring, while the threat of a potential stop to supplies could push inflation higher if realised.

On Wednesday, the Russian energy giant Gazprom stopped deliveries to Poland and Bulgaria for refusing to pay in roubles.

“Delivery bottlenecks due to interruptions in supply chains caused by the COVID-19 pandemic” had also delivered a bump to inflation, Destatis said.

Coronavirus-related lockdowns in China have notably disrupted deliveries from the key manufacturing hub.

EU cuts growth forecast as energy prices 'chill' economy

The EU economy will grow less than expected this year, the European Commission said on Thursday, as energy prices and supply chain problems jack up inflation and delay a more sustained recovery from the pandemic.

Future rate

German inflation would likely “accelerate further in the coming months”, said Carsten Brzeski, head of macro at the ING bank, as the war in Ukraine continued to rumble.

While the soaring cost of energy was still the main driving force behind rising prices, “the pass-through to all kinds of sectors is still in full swing”, Brzeski said.

Year-on-year prices for energy in the inflation statistics rose by 35.3%, while food costs increased by 8.5% in April, according to Destatis.

LEAK: Energy prices will 'remain high and volatile until at least 2023', EU Commission says

Gas and electricity prices will “remain high and volatile until at least 2023” according to long term forecasts quoted in a draft of the European Commission’s communication on energy prices due to be published next month.

European Central Bank vice-president Luis de Guindos offered a dissenting view earlier on Thursday, saying inflation in the eurozone was “very close” to reaching its peak.

The currency bloc should “start to see inflation decline in the second half of the year”, de Guindos told a committee of the European Parliament

Inflation would nonetheless “be high even in the last quarter”, staying above the bank’s two-percent target, he said.

The ECB expects inflation in the eurozone to even out at 5.1% over 2022 in a “baseline” scenario where Russian gas continue to flow.

The Frankfurt-based institution has come under increasing pressure from rising prices to end its stimulus and raise interest rates from historic lows.

At their last meting in April, ECB policymakers agreed to end asset purchases in the third quarter of 2022, with a first rate hike to follow “some time” after.

Raising interest rates won't change energy prices, says ECB chief

Talking to EU lawmakers on Monday (8 February), European Central Bank (ECB) president Christine Lagarde reacted to criticism from conservative politicians who blamed ECB policy for the inflation currently biting into Europeans’ purchasing power.

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