Bundesbank Expects Double-Digit German Inflation in Coming Months, Alongside Recession
19 September 2022
By David Barwick – FRANKFURT (Econostream) – Germany can look forward to double-digit inflation readings in the coming months, just as the country's economy experiences a downturn, the German Bundesbank said on Monday in its latest monthly report.
The expiry of German disinflationary measures as of September 1 caused price increases that ‘will lead to renewed price increases for energy and services in the current month and raise the inflation rate accordingly’, the German central bank said. ‘The measures announced in the latest relief package, such as the gas levy or the electricity price brake, will probably not be reflected in consumer prices until the beginning of next year.’
‘The bottom line is that the inflation rate is likely to move into double digits in the coming months’, it added.
‘There are increasing signs of a recession in the German economy in the sense of a significant, broad-based and prolonged decline in economic output’, the Bundesbank also said. ‘This is primarily due to the fact that the macroeconomic supply conditions - especially energy supply - deteriorated considerably as a result of Russia's war of aggression against Ukraine.’
Output will probably ‘decline somewhat’ in 3Q, the Bundesbank said. The quarter began with mixed results, with retail sales improving and the easing of pandemic measures supporting some other sectors, but industry and construction performing distinctly worse than in June, it observed.
‘All in all, economic output is likely to decline noticeably in the fourth quarter’, the central bank said. ‘This is also likely to apply to the first quarter of next year. From today's perspective, a slump on the scale of the adverse scenario in the June projection is not to be feared. However, the outlook is extremely uncertain.’
On the positive side, the Bundesbank noted the ‘resilience’ of the German job market, which exhibited moderate employment growth in July.
‘The still slightly positive employment trend is driven by the filling of jobs subject to social security contributions, which already exceeded its pre-pandemic level since spring’, the Bundesbank said. ‘In addition, marginal employment, which was significantly reduced during the pandemic and had been depressed until now, recovered somewhat in the spring.’
Leading indicators for the labour market were generally still ‘slightly positive’, the central bank noted.