Inflation in Germany stood at 3.1% during 2021, which is its highest level since 1993, preliminary data from the Federal Statistical Office (Destatis) revealed on Thursday. In 2020, German inflation had remained at 0.5 percent.
Meanwhile, inflation in December was 5.3% compared to the same month in 2020 and becomes the highest figure recorded in 2021. In November it was 5.2 percent.
Destatis noted that rising energy prices played a key role in increasing inflation. This item had an annual acceleration of 18.3% in December.
“The high rates of inflation are due to a number of reasons, including the effects of the low comparison base,” the statement explained.
Other determining factors were the problems in the supply chains and the end of the temporary adjustment of the Value Added Tax from 19 to 16% that had been introduced as a measure to face the economic repercussions of the pandemic.
According to the Institute of Economic Studies (IFO), the implemented measure generated an increase in consumption of 6.3 billion euros, which is considered “not very significant” in view of the loss of 20 billion euros in revenue.
The sharp decline in the prices of petroleum products has had an upward effect on the current global inflation rate. Likewise, Destatis explains, the factors of the usual market evolution are added, as well as other additional factors such as the introduction of the CO2 tax from January 2021.
In the European country, each company that sells fossil fuels must pay 25 euros for each ton of CO2 emissions produced by those fuels; by 2025 it will go from 25 to 55 euros per ton generated.
According to Destatis, in monthly comparison inflation increased 0.5 percent. Most economists believe that it will take time before the inflation rate returns to its usual levels, and by 2022 they expect it to be above 3 percent on average once more.
He highlighted the marked price increases in the previous phases of the economic process, but “so far, only some of these increases have had a moderate impact on the consumer price index and on the inflation rate.”
Fed will tighten monetary policy
Alarmed by the persistence of high inflation, even the more dovish authorities at the Federal Reserve now agree that they will have to tighten monetary policy this year.
James Bullard, head of the St. Louis Fed, said the Fed will raise interest rates in March and is now in a “good position” to take even more aggressive measures against inflation, as needed.
Mary Daly, president of the San Francisco Fed, who was long a mild counterpoint to Bullard’s aggressive stance, said for her part that she also expects interest rate hikes this year, but warned that an overly aggressive adjustment could damage the job market.
A few days ago, Minneapolis Fed Chairman Neel Kashkari said he now expects two rate hikes this year, a reversal of his long-standing view that the central bank should delay hikes to 2024.
The Fed is now divided into two groups: “those who want to tighten monetary policy and those who want to tighten monetary policy even faster,” wrote Bill Nelson, chief economist at the Bank Policy Institute.
Reference-www.eleconomista.com.mx