Core Inflation Set To Remain Sticky and Could Rise Again, Bundesbank Says

20 March 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – The Bundesbank said on Monday that core inflation was proving to be extraordinarily persistent in Germany and could rise further this year.

In its monthly report, the Bundesbank said that ‘the core [inflation] rate is proving to be extraordinarily persistent. It could even rise somewhat towards the middle of the year - also because of the changes in the HICP weights.’

Following a change in the weighting of items in the basket used to measure inflation in Germany, price growth was more muted at the beginning of 2023. The Bundesbank said that ‘[w]ithout a change in the weights, the rate would have even surprised to the upside in both January and February.’

‘Overall, [core inflation] remains at a record level of 5.4 %’, the report noted. This was partially fuelled by a ‘persistently high inflation rate for industrial goods.’

The main driver of the persistently high price increase at the consumer level was unprocessed food, the report said, and in particular vegetables, which have ‘recently become unusually expensive’.

The report warned of ‘a noticeably undersupplied global oil market and thus possibly rising prices’ in the second half of 2023, quoting estimates from the International Energy Agency.

At the beginning of 2023, the German economy ‘recovered only with difficulty from the broad-based and strong setback in December of last year’, according to the report.

‘The consumer-related sectors of the economy continue to suffer from persistently high inflation and the resulting consumer restraint’, the Bundesbank said.

German economic activity was, the report said, ‘likely to decline again in the current quarter. However, the decline is likely to be smaller than in the final quarter of 2022.’