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Business & Finance

German inflation could top 2pc, first time since 2012: experts

  • The rise in 2021 would see Europe's biggest economy surpass the ECB inflation target of just under 2.0 percent.
17 Mar 2021

BERLIN: Inflation in Germany could rise above the 2.0 percent mark for the first time this year since 2012 on rising energy prices even though an economic recovery will be weaker than earlier expected, government economic advisors said Wednesday.

Prices could rise by up to 2.1 percent in 2021 and 1.9 percent in 2022, the so-called "Wise Men" panel of economists which advises the government said in a report.

The rise in 2021 would see Europe's biggest economy surpass the European Central Bank inflation target of just under 2.0 percent.

After having slowed considerably in 2020, inflation is expected to rise this year as the economy picks up following the relaxation of measures to slow the spread of the Covid-19 pandemic.

In Germany, prices sank by 0.5 percent in 2020 before being pulled up this year by rising energy prices since the introduction of a carbon tax in January.

Preliminary official data showed inflation reached 1.3 percent year-on-year in February, its steepest rise since March 2020, when borders were first slammed shut across the world as countries battled to halt the coronavirus.

Germany is traditionally wary of inflation for historical reasons. Extreme hyper-inflation in the early 1920s devastated the economy and fuelled political instability in the fledgling Weimar Republic which preceded Nazi rule.

In a country which has remained nervous about currency stability ever since, rising prices have fuelled criticism of the ECB and its ultra expansionary stance.

A member of a German government advisory panel, Volker Wieland, last week called on the ECB to look at raising interest rates in case of surging inflation.

Yet ECB president Christine Lagarde insisted last week that rising inflation was due to "temporary factors" linked to the pandemic and higher energy prices.

In their report on Wednesday, the "Wise Men" also lowered their growth predictions as a result of ongong coronavirus restrictions.

The experts said that German output would rise by only 3.1 percent, rather than the 3.7 percent growth they predicted in November.

The new figure corresponds to the government's own predictions of 3.0 percent GDP growth this year, following a 5.0 percent fall in GDP in 2020.

In 2022, the experts predicted a growth of 4.0 percent, with a return to pre-pandemic levels by the end of 2021 and the beginning of 2022.