German Bundesbank Sees 2022 German HICP Around 7%, Warns of Supply Constraint Deterioration
23 May 2022
By David Barwick – FRANKFURT (Econostream) – German consumer price growth should average around 7% this year, but supply constraints could worsen considerably yet as China grapples with the pandemic, the German Bundesbank said on Monday in its latest monthly report.
‘Against the background of strong upstream inflation, the inflation rate is likely to be around 7% on average for the current year from today's perspective’, the central bank wrote. ‘However, uncertainty about the price outlook is particularly high at present.’
Continued elevated prices for raw materials, transportation and other intermediate goods suggested that ‘consumer prices are likely to continue to rise strongly in the coming months’, it said.
The Bundesbank noted that global supply constraints had intensified in March. ‘Given the strict measures taken in China against the spread of the coronavirus, these problems could become much more acute in the near future’, it added.
German economic growth in 2Q was ‘likely to increase at best slightly’ as the outcome of ‘strong but opposing forces’, the Bundesbank assessed. In particular, the receding pandemic would support services and consumer spending, while Russian military aggression would worsen the inflation outlook and supply problems, it said.
The Russian war against Ukraine was ‘likely to significantly weaken the previously planned strong recovery’, according to the Bundesbank, citing the dampening impact on household spending, industrial production and construction.
‘Exports are also likely to remain well below the level of the winter quarter due to the disruption to foreign trade and lower foreign demand as a result of the effects of the war’, it added.
The Bundesbank observed that ‘the end of the extremely expansive monetary policy came closer’ recently. The ‘some time after’ of the ECB’s forward guidance about when a rate hike would occur ‘also includes the possibility of raising key interest rates for the first time very soon after the end of net purchases under the APP’, the central bank said.