German inflation hits 13-year high as Bundesbank frets about low ECB rates

Photo: AP Consumer prices rose by 3.1% in July,

Germany's annual consumer price inflation accelerated by more than expected to hit a 13-year-high in July, rising further above the European Central Bank's target of close to but below 2%, the Federal Statistics Office said on Thursday.

Consumer prices, harmonised to make them comparable with inflation data from other European Union countries, rose by 3.1% in July, compared with 2.1% in June. The July figure compared with a Reuters consensus forecast for a reading of 2.9%.

"A base effect due to the corona(virus)-induced reduction in VAT rates in July 2020 is, in particular, responsible for the further increase in the inflation rate in July 2021," the Office said in a statement. "Since January 2021, VAT rates for almost all goods and services have been back at the previous level."

But it added that the exact size of the base effect was difficult to state.

Holger Schmieding, economist at Berenberg Bank, noted that some service sector businesses had also taken advantage of the reopening of the economy after COVID-19 lockdowns to raise their prices.

"In the coming months, the inflation rate will remain high and even tend to increase somewhat," Schmieding added.

July's reading of 3.1% was the highest since August 2008, when the harmonised inflation rate hit 3.3%, an official at the Statistics Office said.

German central bank chief Jens Weidmann said last week he was worried at the prospect of the ECB's low-interest-rate environment being extended for too long, adding that his experts anticipated inflation nearing 5% in Germany later this year.

Weidmann made his comments after the ECB pledged to keep interest rates at record lows for even longer to boost sluggish inflation and warned that the rapidly spreading Delta variant of the coronavirus poses a risk to the euro zone's recovery.

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