The inflation rate in Germany rose by 3.8 percent in July to its highest level since 1993 compared to the same month last year. At that time the rate of price increase was 4.3 percent. The Federal Statistical Office confirmed on Wednesday its first estimate, which the office had published a few weeks ago. Energy prices in particular have increased significantly. For comparison: in June 2021 the inflation rate was still 2.3 percent, in December 2020 prices in this country had even fallen on average. Many experts expect that the inflation rate could climb to five percent by the end of the year and then decline again significantly from 2022.
The rapid price increase in Germany in the first six months of 2021 is not an isolated phenomenon. In the euro zone, too, the inflation rate rose to 2.2 percent in July, the highest level since 2018. The price surge in the USA is even more striking: consumer prices there rose by 5.4 percent in July, as the American Department of Labor announced on Wednesday. The US economy recorded the same rate of inflation as early as June.
The rising prices are putting the American Federal Reserve and the ECB under pressure. Both are aiming for an inflation rate of two percent in the medium term. In normal times, the monetary authorities would now have to start tightening the loose monetary policy and also think about rate hikes. But because companies and – especially in the euro zone – the states are dependent on cheap loans, the two central banks have now decided to different degrees to accept higher price increases for a while. The central bankers argue, among other things, that the current price surge is temporary.
In fact, there are some special factors that are currently causing higher prices: Because inflation rates are compared on an annual basis, the massive drop in prices of the previous year, triggered by the economic consequences of the corona pandemic, is now having a mathematical impact, as the economy and prices are recovering. There are also production bottlenecks in some sectors. This scarcity leads to higher prices. In Germany, VAT rates were raised again to the usual level at the turn of the year, after having been reduced in the previous year due to the corona pandemic. In addition, a CO₂ tax of 25 euros per tonne of carbon dioxide emitted has been due since the beginning of 2021. In Germany, heating oil prices rose by 53.6 percent and fuel prices by 24.7 percent in July. An average of 4.3 percent more was due for food.