Inflation in Germany rises at fastest rate in 28 years

Inflation in Germany continued to rise in September, passing the 4% threshold for the first time since 1993.

Germany’s inflation rose by 4.1% year-on-year in September, the Federal Statistical Office (Destatis) said on Thursday. It is the fastest inflation hike in nearly 28 years.

When inflation rises, consumer purchasing power is weakened and savings decrease in value.

Higher energy prices and supply bottlenecks have combined to steadily raise consumer prices, pushing inflation, official data showed. But the withdrawal of the pandemic-related temporary Value Added Tax (VAT) reduction in January has also had an impact, with goods and services becoming more expensive since.

Inflation in Germany has accelerated for the third month in a row, according to first estimates from Destatis. The price of energy and food items were the most affected by inflation, data showed.

Inflationary spiral not expected

Economists expect consumer prices in Germany to continue to rise in the coming months, with some projecting inflation rates could reach 5%.

The Bundesbank said this week that German inflation will likely stay above two percent through mid-2022, exceeding the European Central Bank’s target for the euro zone.

But this does not automatically mean that a prolonged inflationary spiral is in the cards for Europe’s largest economy. Analysts see the rise in inflation as a temporary phenomenon, as the global economy slowly returns to normal, following the Ccovid-19 pandemic.

European Central Bank chief Christine Lagarde has also said that the current trend of rising inflation, above the bank’s two percent target, were due to temporary factors and warned to not “overreact” to high inflation driven by supply shortages.

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