Euro

Inflation in Germany rose last year to its highest level since reunification in 1990, with consumer prices rising by 7.9% on average in 2022 compared to the previous year, the Federal Statistical Office said on Tuesday.

In comparison, consumer prices in 2021 had risen by an average of 3.1%.

Energy and food have been the main price drivers for months. The Russian invasion of Ukraine and supply bottlenecks have exacerbated an already tense economic situation following the global pandemic.

Consumers in Germany had to pay 24.4% more for energy in December than a year earlier. Food prices rose by 20.7% within a year.

High inflation rates reduce the purchasing power of consumers and erode income gains as people can afford less for each euro they spend.

Inflation rates at the current level have never been seen in reunified Germany. Before the reunification in 1990, following the fall of the Berlin Wall, the strongest average increase in a year was recorded in 1951, when it was 7.6%. However, the method of calculation has changed over time.

Although the overall inflation rate reached record highs last year, it slowed in December, with consumer prices 8.6% higher compared to the same month last year, the Federal Statistical Office further announced.

This is lower than November’s and October’s inflation rates, which stood at 10% and 10.4% respectively.

The state is trying to relieve the burden on companies and consumers with billions in aid. This year, it plans to use price brakes for electricity and gas to cushion the consequences of higher costs.

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Economists assume that this will dampen the rise in inflation in 2023.

There is no rapid relief in sight for prices, however. “Inflation is high and will only decline gradually,” said Bundesbank president Joachim Nagel recently.

The European Central Bank (ECB) has been trying to curb inflation in the wider euro area with interest rate hikes since last summer. When loans become more expensive, this slows down demand and can thus counteract high inflation rates.

At the same time, however, higher interest rates are a burden for the economy, which is already weakened by the consequences of Russia’s war.

After four interest rate hikes in a row in the past year and a key interest rate of 2.5%, the ECB does not yet see an end in sight for its efforts to combat record high inflation. Christine Lagarde, the head of the ECB, made this clear after the central bank’s last meeting in mid-December of 2022, saying: “We have longer to go, and we are in for a long game.”

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