Inflation in Germany reached a 13-year high

The growth rate of consumer prices in Germany accelerated to 3.8% in July. It thus reached a 13-year high and far exceeded the European Central Bank's target of inflation at 2%. Preliminary data from the Federal Statistical Office Destatis showed this on Thursday. At the same time, economists estimated that consumer price inflation in Europe's largest economy would accelerate to 3.3% in July from 2.3% in June. In July, for the first time since 2008, the inflation rate in Germany exceeded 3%. According to statistics, the engine of its growth was mainly higher energy prices and the so-called base effect after the abolition of the temporary reduction in value added tax from 1 July to 31 December 2020, which appeared in the data for the first time. The aim of last year's VAT reduction was to help mitigate the negative impact of the new coronavirus pandemic on the economy. "The base effect caused by the reduction of VAT rates in July 2020 is responsible for a further increase in the inflation rate in July 2021," the statistical office said in a statement. "Since January 2021, VAT rates for almost all goods and services have been back to the previous level," Destatis added, adding that the exact effect of the base effect is difficult to determine. Destatis also reported that in July, prices of goods in Germany increased by 5.4% year-on-year and prices of services by 2.2%. In a month-on-month comparison, consumer prices in Germany rose by 0.9% in July and also exceeded the estimates of economists, who expected their increase by 0.5%. The harmonized index of consumer prices (HICP), which is determined throughout the European Union according to a uniform methodology, rose by 3.1% year on year in Germany in July after rising by 2.1% in June, while economists expected it to reach 2,9%. The July HICP is the highest since August 2008, when the harmonized inflation rate reached 3.3%. Month-on-month, the HICP increased by 0.5%, which is in line with economists' expectations. The final results for July will be published by Destatis on August 11.