Inflation is at its highest level since 1993 – economy

The inflation rate in Germany reached 3.8% in July compared to the same month last year, the highest level since 1993. At that time, the rate of price increase was 4.3 percent. The Federal Statistical Office confirmed its first estimate on Wednesday, which it published a few weeks ago. Above all, energy prices have increased considerably. For comparison: in June 2021, the inflation rate was still 2.3%, in December 2020 prices in this country even fell on average. Many experts expect the inflation rate to climb to 5% by the end of the year, then decline significantly again from 2022.

The rapid rise in prices in Germany in the first six months of 2021 is not an isolated phenomenon. In the euro zone, too, the inflation rate reached 2.2% in July, the highest level since 2018. The surge in prices in the United States is even more striking: consumer prices there increased by 5.4% in July, as the US Department of Labor announced on Wednesday. The US economy recorded the same inflation rate as early as June.

Rising prices are putting pressure on the US Federal Reserve and the ECB. Both aim for an inflation rate of 2% in the medium term. In normal times, monetary authorities should now start to tighten accommodative monetary policy and also think about rate hikes. But because businesses and – especially in the eurozone – states depend on cheap loans, the two central banks have now decided to varying degrees to accept higher price hikes for some time. Central bankers argue, among other things, that the current price spike is temporary.

In fact, there are particular factors currently causing higher prices: impact, as the economy and prices recover. There are also production bottlenecks in some sectors. This scarcity results in higher prices. In Germany, VAT rates were raised again to the usual level at the end of the year, having been reduced the previous year due to the corona pandemic. In addition, a CO₂ tax of 25 euros per tonne of carbon dioxide emitted has been due since the start of 2021. In Germany, the prices of domestic fuel oil increased by 53.6% and fuel prices by 24.7% in July. On average, 4.3 percent more was owed for food.

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