Bundesbank Sees Slight 2Q German Economic Growth; Inflation Likely to Remain High Coming Months

20 June 2022

By David Barwick – FRANKFURT (Econostream) – German consumer price growth will probably remain high over the next few months and average about 7% for the entire year, the German Bundesbank said on Monday in its latest monthly report.

‘In the coming months, the inflation rate is likely to remain significantly elevated due to the strong price pressure at the upstream production stages, despite the relief measures as of June in the form of the fuel rebate and the nine-euro ticket’, the central bank wrote.

Average 2022 HICP projected at around 7% ‘is mainly due to the rapid increase in prices for energy and food commodities’, according to the Bundesbank, which predicted 2022 average core inflation at about 3.5%.

‘In addition to sharply higher commodity prices, supply bottlenecks are the main factor driving up prices’, it said. ‘These effects will abate in the projection period. At the same time, however, pressure from labour costs remains high, and the transformation to a climate-neutral economy is generating further costs.’

The interaction of competing effects meant that even in 2024, headline and core HICP would still be high at around 2.5%, the Bundesbank said.

The German central bank predicted that the euro area’s largest national economy would ‘grow slightly’ in 2Q of this year and by some 2% for the whole of 2022, about 2.5% in 2023 and just under 2% in 2024.

‘It will thus reach its production potential in 2024’, it said. ‘The labour market remains on an upward trend. Wages increase strongly, but the high inflation is initially only partially offset.’

According to the Bundesbank, the German economy now employs more people than before the pandemic, but the labour market is losing momentum.

‘In many sectors of the economy, it is becoming increasingly difficult for employers to find suitable staff’, it said. ‘Particularly in the manufacturing sector supply bottlenecks and the high level of uncertainty due to the war in Ukraine are also likely to have a dampening effect on employment development.’