The economy does not expect normal inflation rates before the middle of the decade

Berlin, December 30 – The German economy does not offer consumers the prospect of a quick end to the sharp rise in prices. “Inflation started before the energy crisis and will continue for the time being,” Association of German Chambers of Industry and Commerce (DIHK) chairman Peter Adrian said in a survey of leading associations. published by the Reuters news agency on Friday. “We have to assume that inflation will stay above the ECB’s reasonable target of 2% for some time to come.” The inflation rate is currently hovering around 10%, a level not seen since 1951.

The Central Association of German Handicrafts (ZDH) has also not yet given the green light on inflation for the next few months. “A noticeable slowdown in price increases is probably not expected before the summer of 2023,” ZDH secretary general Holger Schwannecke said. But even then, the level will remain high and the rates of increase will be “significantly higher than in the years leading up to 2022”. Only very few companies would have been able to fully pass on increased costs for energy, raw materials or preliminary products in higher prices for end customers.

“WILL REDUCE INVESTMENTS”

According to estimates by the Federation of German Industries (BDI), inflation is no longer mainly driven by energy prices, but by a number of factors. “A return to a 2% level will probably take longer and can only be achieved by the middle of the decade, when monetary policy comes into effect,” said BDI chairman Siegfried Russwurm. Over the summer, the European Central Bank (ECB) ended its long zero interest rate policy and raised its key interest rate in several steps to the current 2.50% in order to curb inflation . “The ECB has already tightened the reins, but will decide on further measures,” Russwurm said. “We expect this to dampen investment activity.”

The Federal Association for Wholesale, Foreign Trade and Services (BGA) hopes that the peak of the sharp rise in prices may have already been reached. “We are now seeing the first signs of an easing of price pressure,” said BGA chairman Dirk Jandura. “For energy and commodities, we are again seeing a downward price trend.” He is convinced that this development will continue. This succeeds all the more quickly as one progresses along the path of supply chain diversification. Disruptions to global supply chains are seen as one of the reasons for the sharp rise in prices.

According to the DIHK’s assessment, the ECB faces a range of challenges, especially imported inflationary factors in the form of the dramatic increase in energy and commodity prices. “You can’t just capture all of this at the moment,” DIHK chairman Adrian said. “Because he started much too late with the interest rate hikes and therefore the reduction of expansive monetary policy, but then had to raise interest rates all the more quickly. This makes business financing more difficult and represents an additional burden for businesses.

The economy does not expect normal inflation rates before the middle of the decade

Source: Reuters

Photo symbol: Image by Engin Akyurt on Pixabay

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