If the President of the Bundesbank looks into the future, he sees inflation. And that could even be in the double digits in the short term when the tank discount and 9-euro ticket expire, says Joachim Nagel.
Bundesbank President Joachim Nagel believes that the end of the fuel discount and the 9-euro ticket could lead to an increase in the inflation rate to ten percent. “The fuel discount and the nine-euro ticket are running out, which should increase the inflation rate by a good one percentage point,” Nagel told the “Rheinische Post”. “The gas surcharge is coming, in return the VAT on gas is to be reduced, which in turn will dampen prices.”
Overall, an inflation rate of ten percent is possible in the autumn months, said Nagel. The President of the Deutsche Bundesbank made the historical dimension clear: “Double-digit inflation rates were last measured in Germany more than seventy years ago. In the fourth quarter of 1951, according to the calculations at the time, it was eleven percent.”
Inflation in Germany was 7.5 percent last July, after 7.6 percent in June and 7.9 percent in May. “For the whole of 2022, we see the inflation rate in the European harmonized calculation in Germany at over eight percent,” said Nagel.
Inflation could also be higher than previously expected in the coming year, said Nagel. “The issue of inflation will not go away in 2023. Supply shortages and geopolitical tensions are likely to continue.”
In its June projection for 2023, the Bundesbank predicted inflation of 4.5 percent. “In the meantime, Russia has drastically reduced its gas supplies, and the prices for natural gas and electricity have risen more sharply than expected,” said the Bundesbank President. “The probability is growing that inflation will be higher than previously forecast and that we will have an average of six before the decimal point next year.”
Despite the increasing risk of recession in Germany, Nagel emphasized the need for further interest rate hikes by the European Central Bank (ECB). “With the high inflation rates, further rate hikes must follow,” he said. That is also generally expected. “I don’t want to put a number in the window, though,” he added. The past few months have shown that the ECB has to decide on monetary policy from meeting to meeting.
The next ECB interest rate meeting is on September 8th. The ECB initiated the turnaround in interest rates last month with a surprisingly sharp increase of half a point to 0.50 percent. It was the first hike in the key monetary policy rate in eleven years.
