Germany’s Inflation Hits New High of 7.9% in May

Germany’s annual inflation rate climbed to a new record of 7.9% in May, up from 7.4% in April, according to a report by Bloomberg.

Germany’s consumer prices increased to 8.7% from 7.8% a month earlier, well ahead of expectations for 8%, data from the Federal Statistics Office showed.

Germany’s inflation was last time this high in the winter of 1973/1974 when the first oil crisis led to a new and difficult-to-tame inflationary cycle.

According to the office, energy prices rose by 38.3% in May compared to the same month last year, while food prices also rose at an above-average rate of 11.1%.

The report comes just 10 days before a crucial ECB meeting where officials are set to announce the conclusion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade. Some policymakers have even floated the idea of a half-point hike, rather than the quarter-point most of them support.

Money markets wagered on 113 basis points of rate increases by year-end, up to three basis points since Friday. German bonds held declines, with benchmark 10-year yields eight basis points higher at 1.05%.

The inflation figures increase pressure on the government as households are further squeezed. Finance Minister Christian Lindner earlier Monday called the fight against surging prices the “top priority” while advocating an end to expansive fiscal policy. 

“Inflation is an enormous economic risk. We must fight it so that no economic crisis results and a spiral takes hold in which inflation feeds off itself.” Germany’s Finance Minister Christian Lindner

ECB policymakers including President Christine Lagarde have expressed similar concerns, fretting that stubbornly high price growth risks becoming entrenched and damping consumption at a time when the industry is suffering from lingering supply bottlenecks and uncertainty about energy supplies following Russia’s invasion of Ukraine.

Read also; Germany’s Economy Contracts by 5% in 2020.

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