Tuesday , September 28 2021

UPDATE 1-German inflation hits 13-year high as Bundesbank worries about low ECB rates

* Increase eclipsed 2.9% inflation rate forecast

*Base effect from VAT change is partially responsible (Adds detail, economist, background)

BERLIN, July 29 (Reuters) – Germany’s annual consumer price inflation accelerated more than expected, hitting a 13-year high in July, hitting the European Central Bank’s target of close to but below 2%, the Federal Statistics Office said. Thursday.

Adjusted to make it comparable with inflation data from other European Union countries, consumer prices rose 3.1% in July compared to 2.1% in June. The July figure was compared to the Reuters consensus estimate for a 2.9% reading.

“The base effect from the reduction in VAT rates due to the corona (virus) in July 2020 is responsible for the further increase in the inflation rate, especially in July 2021,” the office said in a statement. “Since January 2021, VAT rates for almost all goods and services have returned to the previous level.”

But he added that it is difficult to specify the exact size of the base effect.

Berenberg Bank economist Holger Schmieding noted that some service sector businesses are also taking advantage of the reopening of the economy after the COVID-19 lockdowns to raise prices.

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

An official from the Statistics Office said the 3.1% reading in July was the highest since August 2008, when the harmonized inflation rate reached 3.3%.

German Central Bank Governor Jens Weidmann said last week that he was concerned about the possibility of the ECB’s low-interest environment being extended for too long, adding that his experts expect inflation in Germany to approach 5% this year.

Weidmann made his comments after the ECB promised to keep interest rates at record lows longer to boost stagnant inflation and warned that the fast-spreading Delta variant of the coronavirus poses a risk to the eurozone’s recovery. (Written by Paul Carrel, Edited by Madeline Chambers and Tomasz Janowski)

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