German Inflation Surges as Backlash From Flawed Sanctions Policies Drives Energy Costs

Food items lie in a shopping cart at a store of the Penny supermarket chain in Berlin, Germany, on August 1, 2023.

The economy of heavily industrialized Germany has been hit harder than other EU members by sanctions on Russian gas, oil, and coal imports. Accordingly, it has been one of the worst performing in Europe, along with France, facing stinging inflation that has caused prices to rise.Inflation in Germany surged higher than predicted in April on the back of persistently high energy and food prices, the Federal Statistical Office said on Monday.Headline inflation was at 2.2 percent year-on-year – the same as in March. Consumer prices increased 2.4 percent in the year to April, rising from 2.3 percent a month earlier, according to Destatis. Economists polled by Bloomberg had expected price growth to remain at 2.3 percent.

Headline inflation is the total inflation in an economy. The figure reflects inflation in a basket of goods that includes commodities like food and energy, unlike core inflation, which excludes prices for the latter two.

The last time Germany’s annual inflation rate was lower than the current figure was in April 2021, when it was two percent.In January, Joachim Nagel, president of Deutsche Bundesbank, Germany’s central bank, took pride in the fact that the European Central Bank (ECB) had tamed the “greedy beast” of inflation. The ECB raised interest rates by the most in the euro’s history to try and coax inflation down from double-digits. However, it is evident that the ECB’s two percent target still appears to be unattainable, with the inflation uptick trend forecast to persist.© Photo : DestatisScreenshot of chart showing uptick of German inflation.Screenshot of chart showing uptick of German inflation.“German headline inflation slightly increased in April on the back of higher energy costs and is likely to make another upward leap in the coming month due to base effects for transport prices,” Bloomberg economist Martin Ademmer was cited as saying.Commerzbank economist Ralph Solveen similarly suggested that the inflation rate is likely to rise again in coming months.The same statistics show that consumers in Germany had to pay 0.5 percent more for food in April than a year before. In some of the country’s states, a significant rise in district heating prices was registered. Data put out by the German Federal Statistical Office earlier this week indicated that modest rebound in consumer spending will likely enable the country to avoid sinking back into a 2022-2023-style recession this year.Economists noted that the inflation surge took place against the backdrop of the expiry of temporary government support for gas and district heating. The value-added tax (VAT, indirect tax on the consumption of goods and services in the economy) rate of 19 percent is back in force after the seven percent that was applied from October 1, 2022 to March 31, 2024 to offset high energy prices stemming from Germany’s self-harming decision to go along with sanctions against Russia.

Formerly Europe's economic powerhouse, Germany has been hit the hardest by sanctions on Russian gas, oil, and coal imports imposed over its special operation in Ukraine, and the fallout from the sabotage of the Nord Stream 1 and 2 pipelines. Germany’s economic crisis plunged Europe's one-time leader into a technical recession last year, with deindustrialization and stinging inflation.

Under the leadership of Chancellor Olaf Scholz and his government, Germany’s policies implemented in the wake of the Ukraine conflict’s escalation in February 2022 have translated into bitter losses for the country’s economy. Berlin has done its utmost to cut all economic ties with Russia, regardless of how beneficial they were to the German economy.EconomyGerman Industry Stuck in Slump Despite ‘Improving Worldwide Economy’ Thanks to Anti-Russian Policy28 April, 10:53 GMT


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