World Economy

German Inflation Highest Since 2012

German Inflation Highest Since 2012German Inflation Highest Since 2012

Germany’s annual inflation rate rose further in February, hitting its highest level in four-and-a-half years, led by energy and fresh food prices.

Germany’s annual inflation rate, measured by harmonized European Union standards, rose to 2.2% from 1.9% in January, the Destatis statistics body said, confirming a preliminary inflation estimate from March 1. It marks the highest rate since August 2012, MarketWatch reported.

Despite the pickup in headline inflation in Germany and elsewhere in the eurozone, there may be no change in the European Central Bank’s loose monetary policy given that it is volatile energy and food prices which are pushing the inflation rate up. Many economists expect inflation to ease again this spring, as domestic price pressures remain low.

Energy prices in Germany jumped 7.2% in February from the same month last year. Destatis said that the move was largely the result of a “base effect”, because energy prices hit a low point in February 2016. Food prices rose 4.4%, led by rising prices for fresh vegetables.

Lettuce, tomatoes and cucumbers were among the items becoming significantly more expensive for the German consumer last month, with Germans, as well as Brits, also suffering the effects of a Europe-wide shortage of lettuce following bad weather in Spain and Italy, with prices up 141%. Aubergine prices rose more than 80%.

Inflation across the eurozone has risen at a faster pace than expected by policymakers in recent months as energy prices have rebounded following a global slump last year.

Still, the European Central Bank expects inflationary pressures to subside over the latter half of the year and thinks prices will still undershoot target at just 1.7% in 2019.

ECB president Mario Draghi has declared victory over the bloc’s battle with deflation but has been more cautious on proclaiming success over meeting the bank’s target of average inflation of just under 2%.

Inflation trends will continue to be important in the short term with the Bundesbank watching any evidence of second-round effects very closely. There will be some speculation that a higher headline inflation rate will put upward pressure on wage settlements during the Spring negotiating round.

If there is a significant increase in wage costs, there would also tend to be wider upward pressure on corporate costs and increase the risk of a higher headline inflation rate. Such a development would also cause important concerns within the Bundesbank and a stronger campaign for a shift in ECB monetary policy.

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