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German Central Bank predicts stable inflation

The latest monthly report from Germany’s central bank forecasts inflation in the country to remain roughly steady and not continue to fall for the time being.

“In the coming months, the inflation rate is likely to fluctuate around its current level,” the German Bundesbank wrote in the report, which was published on Monday.

In October, the harmonized index of consumer prices (HICP), which the European Central Bank (ECB) relies on for its monetary policy decisions, fell to 3% in Germany, a notable decline after 4.3% in September and 6.4% in August.

According to the Bundesbank, the rise in prices for food and other goods is continuing to ease.

“On the other hand, the comparatively high price increase for services – which also come against the backdrop of strong wage growth – is likely to continue for some time,” according to the central bank report.

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Energy prices are also likely to rise again, partly due to the increase in the CO2 price on fossil fuels that will go into effect in Germany at the turn of the year, according to the Bundesbank.

The Bundesbank does not rule out the possibility of inflation rising again to above 4% at times in December.

Last December, one-off emergency government aid to offset high gas prices helped dampen the effect of price increases – but that won’t happen again this year.

According to the central bank, the German economy will probably struggle to emerge from its current sluggish performance, which has persisted since Russia launched its full-scale invasion of Ukraine in February 2022.

The invasion triggered an energy crisis in Germany, which had relied heavily on imported Russian gas for electricity and heating. Russia largely cut off gas deliveries to Germany and other European Union countries in response to strict sanctions and extensive military support for Ukraine.

Germany’s export-oriented economy has also been affected by weak global demand, including from China, an important market for many German industrial manufacturers.

The Bundesbank’s experts expect economic output to fall slightly again in the fourth quarter.

According to preliminary data from Germany’s Federal Statistical Office, gross domestic product (GDP) shrank by 0.1% in the third quarter compared to the previous quarter.

Economists consider an economy to be in a technical recession if GDP falls for two quarters in a row. Economists and the German government are also forecasting a slight decline in GDP for 2023 as a whole.

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According to the Bundesbank, the German economy could begin growing again modestly at the start of the new year, with domestic demand gradually gaining momentum and helping drive growth.

“This is because the real net income of private households should continue to rise due to high wage increases and easing price pressure,” the Bundesbank wrote.

Source: .dpa



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