Status: 11/22/2021 2:03 p.m.
The Deutsche Bundesbank believes it is possible that inflation will rise to just under six percent in November. This would have accelerated the recent already strong inflation again.
The Bundesbank believes a surge in inflation in Germany to just under six percent in November is possible. In October, the harmonized HICP consumer price index, which the ECB uses as the basis for its monetary policy, rose to 4.6 percent in Germany. This month the rate could be “even close to six percent”, wrote the central bank in its monthly report published today, the penultimate in the responsibility of the outgoing Bundesbank chief Jens Weidmann.
The Bundesbank attributes part of the increase to special effects such as the pandemic-related temporary reduction in VAT in Germany from summer 2020. The old tax rates have been in effect again since the beginning of this year. This special effect will no longer apply from January 2022. “Then the inflation rate should fall noticeably, although the strong rise in market prices for natural gas will probably only be passed on to consumers for the most part after the turn of the year,” writes the central bank. The experts anticipate that the rate of inflation will gradually decrease in the coming months of the coming year. “But it could remain well over three percent for a long time.”
Is there a threat of a wage-price spiral?
In this context, the central bank is critical of the possible new federal government’s plans to raise the minimum wage to EUR 12 per hour towards the end of 2022. This would have “non-negligible spillover effects” on the higher wage groups, explained the Bundesbank. “This is also likely to increase wage pressure in the future.” The warning is based on concerns about a spiral of rising prices and rising wages.
The European Central Bank is aiming for an annual inflation rate of two percent for the currency area of the 19 countries. In addition, the monetary authorities have indicated that they will temporarily accept that the target will be exceeded or not reached. From the ECB’s point of view, the current rise in inflation is temporary. At the last regular meeting of the Monetary Policy Council in October, the ECB left the key interest rate and the volume of bond purchases unchanged.