Higher inflation lasts longer – saving

The Bundesbank expects inflation in Germany to rise in the coming year. German central bank economists assume in their monthly report presented on Monday that from September until the end of the year, even inflation rates of between four and five percent will be temporarily possible. “At the start of 2022, inflation is expected to drop significantly, but will still be above 2% by the middle of the year,” the report continued.

Due to rising gasoline and food prices, the inflation rate was 3.9% in August, as strong as it has been for almost 28 years. Many experts assume that it is likely to increase in the direction of five percent in the next few months due to special effects. Difficulties in delivering some preliminary products such as semiconductors, which have become scarce following the Corona crisis, are also pushing up prices. It also slows down the development of the industry.

The Bundesbank recalls that industrial production rose again in July for the first time in four months. However, this is largely due to the location of the summer vacation. Overall, according to Bundesbank forecasts, German economic output is expected to increase more sharply in the third quarter than in the spring by 1.6%. However, due to supply chain issues in the industry, it is not yet to be expected that the pre-crisis level of the fourth quarter of 2019 will be reached again.

In its monthly report, the Bundesbank also warns of the dangers of capital depreciation due to the economic consequences of climate change. The risk of “stranded assets” at the corporate level could make the implementation of monetary policy more difficult, damage the creditworthiness of banks and reduce the supply of credit. The Bundesbank describes the sudden or creeping devaluation of the core capital of a company or industry as ‘stranded assets’ if that capital can no longer be used for production or if production is no longer profitable due to rising CO₂ prices.

In general, climate change places the Eurosystem in front of new tasks in order to achieve the objective of price stability, the report continues. The real economy and inflation would become more sensitive to fluctuations in the future due to extreme weather events. For this and other reasons, the Eurosystem should be regularly subjected to a climate stress test in order to identify possible imbalances in climate-related financial risks.

Bundesbank President Jens Weidmann recently made it clear that the European Central Bank (ECB) should not pursue its own climate policy. “It is not our responsibility to correct or anticipate the results of the democratic decision-making process of parliaments and governments,” he said at an event. In July, the Governing Council decided to further integrate climate protection aspects into its monetary policy framework.

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