The Bundesbank expects inflation to rise in Germany well into the coming year. The economists of the German central bank assume in their monthly report presented on Monday that from September until the end of the year even inflation rates of between four and five percent will temporarily be possible. “At the beginning of 2022, inflation is likely to drop noticeably, but will still be over two percent by the middle of the year,” the report continues.
Due to rising gasoline and food prices, the rate of inflation was 3.9 percent in August, as high as it has been in almost 28 years. Many experts assume that it is likely to increase in the direction of five percent in the coming months due to special effects. Delivery difficulties for some preliminary products such as semiconductors, which have become scarce as a result of the Corona crisis, are also driving up prices. This also inhibits the development of the industry.
The Bundesbank points out that industrial production rose again in July for the first time in four months. However, this is largely due to the location of the summer vacation. Overall, according to the Bundesbank’s forecast, German economic output is likely to climb more strongly in the third quarter than in the spring of 1.6 percent. Due to the supply chain problems in the industry, however, it is not yet to be expected that the pre-crisis level from the fourth quarter of 2019 will be reached again.
In its monthly report, the Bundesbank also warns of the dangers of capital depreciation due to the economic consequences of climate change. The risk of so-called “stranded assets” at company level could make the implementation of monetary policy more difficult, impair the creditworthiness of banks and reduce the supply of credit. The Bundesbank describes the sudden or creeping devaluation of the capital base of a company or an industry as “stranded assets” when this capital can no longer be used for production or production is no longer profitable due to higher CO₂ prices.
In general, climate change confronts the Eurosystem with new tasks with a view to achieving the goal of price stability, the report continues. The real economy and inflation would become more susceptible to fluctuations in the future as a result of extreme weather events. For this reason, among other things, the Eurosystem should be regularly subjected to a climate stress test in order to identify possible imbalances in climate-related financial risks.
Bundesbank President Jens Weidmann recently made it clear that the European Central Bank (ECB) should not pursue its own climate policy. “It is not our responsibility to correct or anticipate the results of the democratic decision-making process in parliaments and governments,” he said at an event. In July, the Governing Council decided to incorporate climate protection aspects more strongly into its monetary policy framework.