Bundesbank President Joachim Nagel expects an inflation rate of over eight percent for Germany for the whole of 2022 in the European calculation (HICP). In the autumn months, an inflation rate of ten percent is even possible. “Double-digit inflation rates were last measured in Germany more than seventy years ago,” Nagel told the Rheinische Post newspaper in an interview published on Saturday. Nagel pointed out special effects such as the tank discount and the nine-euro ticket, which are now being phased out. That will increase the inflation rate by a good one percentage point. “The gas surcharge is coming, in return the VAT on gas is to be reduced, which in turn will dampen prices,” he added.
According to Nagel, inflation could also be stronger next year than previously thought. Supply shortages and geopolitical tensions are likely to continue, he said. “There is a growing likelihood that inflation will be higher than previously forecast and that we will have an average of a six before the decimal point next year,” he said. The latest projections by the Bundesbank assume a rate of 4.5 percent in Germany for 2023.
Nagel: Further rate hikes will follow
Despite the increasing risk of recession in Germany, Nagel emphasized the need for further interest rate hikes by the European Central Bank (ECB). “With the high inflation rates, further interest rate hikes must follow,” said Nagel. That is also generally expected. “But I don’t want to put a number in the shop window,” he added. The past few months have shown that the ECB has to decide on monetary policy from meeting to meeting. The next ECB interest rate meeting is on September 8th.
Inflation in the currency area had recently rushed from record to record. Fueled by high energy and food prices as a result of the Ukraine war, it was 8.9 percent in July. The ECB initiated the turnaround in interest rates last month with a surprisingly sharp increase of half a point to 0.50 percent. It was the first hike in the key monetary policy rate in eleven years.
Due to the energy crisis, Nagel fears that the German economy could slide into a recession in the winter. In the first half of the year, the economy was still doing quite well under difficult conditions, he said. However, should further delivery problems arise, for example due to prolonged low water, the economic prospects for the second half of the year would deteriorate further, according to Nagel. “If the energy crisis deepens, a recession next winter looks likely,” he warned. Germany is the largest economy in the euro area. ECB Director Isabel Schnabel is now not ruling out a recession for the entire euro zone.
