Inflation in Germany rose to its highest level in almost ten years

Inflation in Germany rose to its highest level in almost ten years in May. Fueled above all by higher energy prices, the annual rate of increase according to preliminary calculations was 2.5 percent, as reported by the Federal Statistical Office. According to the information, it was the highest level since September 2011 with 2.5 percent at the time. Since the end of the temporary VAT cut at the end of last year, consumer prices have risen for the fifth month in a row. Consumers had to dig deep into their pockets in May 2021 for energy, which rose by 10.0 percent within a year. At the beginning of the Corona crisis in spring 2020, crude oil prices had temporarily collapsed due to low demand on the world market. They have since recovered. In addition, the CO2 levy of 25 euros per tonne of carbon dioxide (CO2) emitted when diesel, petrol, heating oil and natural gas was introduced at the beginning of the year is causing the prices for heating and refueling to rise. Food prices rose by 1.5 percent in May compared to the same month last year, and services by 2.2 percent. From April to May 2021, consumer prices rose by a total of 0.5 percent. According to economists, inflation could soar to well over 3 percent over the course of the year. "However, this is largely due to temporary effects, so that significantly lower rates can be expected again for the coming year," argued Commerzbank economist Marco Wagner. The monthly water level reports should not be overinterpreted, warned Jörg Zeuner, chief economist at the fund provider Union Investment. According to Thomas Gitzel, VP Bank's chief economist, the "spook" will be over in the coming year. "Germany, but also the euro zone as a whole, will have to struggle with inflation rates that are too low rather than too high in the long term. The ECB knows that too." The inflation rate is an important yardstick for the monetary policy of the European Central Bank (ECB). The central bank is aiming for an annual inflation rate of just under 2.0 percent for the entire euro area with its 19 countries in the medium term - far enough away from zero. After all, prices that are permanently low or falling across the board could tempt companies and consumers to postpone investments. That can slow the economy down. Despite the zero interest rate policy and glut of money, the target has not been achieved for years. However, according to the respective statistical offices, inflation is currently also increasing in other countries in the euro area. In Spain, the cost of living calculated using the European method increased by 2.4 percent in May compared to the same month last year. In Italy consumer prices (HICP) rose by 1.3 percent. This is the highest annual inflation rate since November 2018. In Germany, the harmonized consumer price index HICP, which is decisive for the ECB's monetary policy, was 2.4 percent above the level of the previous month in May. Economists expect inflation in the euro area to reach the ECB target in May. It is controversial whether consumers have to adjust to sustained increases in prices. Europe's monetary authorities regard the surge in inflation as temporary and refer to special factors such as the rise in energy prices.