Bundesbank: German Inflation Could Remain in Double Digits into 2023

23 November 2022

By David Barwick – FRANKFURT (Econostream) – Double-digit inflation could persist in Germany into next year, the German Bundesbank said on Wednesday in its latest monthly report.

‘The inflation rate could remain in double digits beyond the turn of the year’, the German central bank said. It remains uncertain how much inflationary impact will be exerted by administrative measures to take some of the burden of high energy prices off consumers, and the eventual expiry of gas and electricity price brakes will have the opposite effect on inflation, the Bundesbank noted.

‘In the current negotiations, the trade unions are demanding exceptionally high wage increases in view of high inflation’, the Bundesbank said, citing ver.di trade union’s insistence on a pay increase of 10.5%

‘It is not to be expected that these demands will lead to actual wage agreements of the same order of magnitude’, the Bundesbank said. Still, even if wage inflation doesn’t necessarily accelerate, there is a greater risk of second-round effects, it said, which ‘would increase the risk of inflation remaining well above the euro area's medium-term target of 2% for longer.’

The German job market is caught between a shortage of labour on the one hand and lower demand for workers on the other, the Bundesbank said. This tension will ease in the coming months, but ‘the labour market should remain largely stable’, it said.

In the current half-year period, the German economy would probably enter recession, the Bundesbank said, notwithstanding the better-than-expected performance last summer. ‘However, the extent of the recession is highly uncertain’, it added. ‘As things stand, a gas shortage can probably be avoided.’

Globally, softer commodity prices should put downward pressure on consumer prices, though stronger wage developments in some developed economies ‘could drag out the inflation process’, the Bundesbank said.

‘Moreover, upside risks to the inflation outlook continue to predominate’, the German central bank confirmed. ‘The withdrawal of the degree of monetary expansion aims to reduce the support to demand and prevent the risk of a lasting upward shift in inflation expectations.’