War in Ukraine causes prices to rise in Germany

posted on Wednesday, March 30, 2022 at 5:38 pm.

Unheard of in more than 40 years, inflation in Germany jumped 7.3% in March, helped by the war in Ukraine, which is pushing up energy and food prices, making it harder for the government and the European Central Bank (ECB).

To find such a high annual increase, we have to go back to November 1981 in West Germany. The figure, announced on Wednesday by the National Statistical Institute, is the highest since the country’s reunification in 1990.

According to Destatis, inflation increased by 2.5% over the month.

The harmonized price index, which serves as a benchmark at the European level, reached 7.6%, exceeding the ECB’s medium-term target of 2%.

Destatis said the reason for this historic surge is Russia’s “assault on Ukraine,” which has shattered hopes for price stabilization after recent months’ rally, fueled by constant supply chain tensions.

The conflict has exacerbated the imbalance between supply and demand since the peak of the Covid-19 pandemic, when supplies of raw materials, components and energy have struggled to keep up with the recovery.

– Production suspended –

All European countries are concerned, as well as the United States. In Spain, inflation approached 10% in March.

For Germany, the first EU economy especially dependent on Russian gas, the powerful industrial sector is experiencing an energy shock.

Faced with excessively high production costs, Bavarian steelmaker Lech Stahlwerke decided to temporarily close its plants in early March. Aluminum producer Trimet will halve production in Essen (west).

German energy prices jumped 39.5% in March after rising 22.5% in February and 20.5% in January.

At the end of the chain, the consumer is starting to feel the effects of this surge after years of sluggish inflation.

Thus, the Aldi group, one of the world’s leaders in low-cost sales, increased the prices of almost 400 products, according to the trade publication Lebensmittel Zeitung, from baked goods to detergents and frozen foods.

Causes are again mentioned there: difficulties in international shipping, the Omicron wave, a shortage of truck drivers and rising prices for raw materials.

Food prices rose 6.2% in March, after 5.3% in February and 5.0% in January, according to Destatis.

Russia and Ukraine are two of the world’s grain exporters, especially cattle wheat. This growth was also supported by the prices of nitrogen fertilizers, of which Russia is one of the main exporters, and energy prices.

– Spectrum 20s –

The cocktail is explosive for a government in a country of savings, where any price increase is due to the fear that its savings will be cut.

The hyperinflation of the 1920s left a deep mark on people’s memory and is still considered one of the main reasons for the rise of Nazism. The current phenomenon is also evoking the specter of 1970s stagflation – a mixture of sluggish economic growth and high inflation.

Berlin has already announced support measures worth several billion euros, including a sharp reduction in public transport fares.

The war led to the collapse of growth forecasts for the current year. The Wise Men, experts advising the German government, on Wednesday revised their 2022 GDP growth forecasts from 4.6% to 1.8%, while aiming for record inflation of 6.1%.

Galloping inflation is also worrying euro keepers and is likely to exacerbate divisions within the ECB between supporters of an early key rate hike and supporters of a more wait-and-see position.

Christine Lagarde, president of the institution, was concerned on Wednesday at the risk of a prolonged deterioration in the economy. “The longer the war goes on, the higher the economic cost and the higher the chance of a negative outlook,” she said in Cyprus, urging governments to invest to support the economy.

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