The record jump in German producer prices adds to the “bleak” outlook

German producer prices rose at an all-time high in July, underscoring the bleak outlook for Europe’s largest economy, which is in the stranglehold of rising costs and flagging growth as a result of the Ukraine war.

Commodity prices — a leading indicator of inflation — rose 37.2 percent for the year, the biggest increase since records began in 1949, the Federal Statistical Office said on Friday.

The month-on-month increase of 5.3 percent was also the highest since records began.

“The prospects for further development (of the economy) are currently noticeably clouded,” said the Ministry of Finance in its August monthly report published on Friday, adding that it was characterized by “high uncertainty”.

The record rise in producer prices was primarily due to skyrocketing energy prices, which rose 105 percent overall compared to the same month last year, the bureau said.

The German economy stagnated in the second quarter, the war in Ukraine, soaring energy prices, the Covid-19 pandemic and supply disruptions brought it to the brink of a downturn.

“The significantly lower gas supplies from Russia, the persistently high price increases for energy and increasingly other goods as well as the longer than expected interruptions in the supply chains, also in connection with China’s zero-Covid policy, are weighing heavily on the development of the economy,” said the Ministry of Finance .

In addition to the already high energy costs, the federal government will levy surcharges for gas consumers from October 1st, which will add several hundred euros to the annual electricity bill of an average family.

To cushion the blow, sales taxes on gas are to be cut from 19 percent to 7 percent while the levies exist.

Higher energy prices mean inflation isn’t slowing anytime soon: Germany’s annual inflation rate was 8.5 percent in July, in line with the broader euro zone’s record 8.9 percent.

Experts believe that German inflation could reach around 9 percent in late August after relief measures, which include cheaper public transport and a cut in fuel taxes, end.

Then inflation should peak, said Commerzbank economist Ralph Solveen.

However, wage increases expected next year should provide further support for interest rates, “and companies are likely to pass these costs on to their customers.”

The federal government forecast inflation of 6.1 percent for 2022 in April. It will present updated economic forecasts on October 12, the Treasury Department said. The record jump in German producer prices adds to the “bleak” outlook

Fry Electronics Team

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