Germany Reports Highest PPI Increase in 45 Years

According to data released by the Federal Statistics Office of Germany, the Producer Price Index went up by 1.5% in August (month-on-month), beating expectations of 0.8% but lower than July’s 1.9%.

In yearly terms, the PPI increased by 12% in August, the highest in 45 years, also beating expectations of 9.2% and July’s 10.4%.

According to the data, energy prices rose by 24% annualized, while compared to the previous month they rose by 3.3%. This increase in energy prices was mainly driven by a strong increase in natural gas distribution costs.

Intermediate goods prices increased by 17.1% compared to August 2020, and by 1.4% month-on-month. Changes in sawn timber, metallic secondary raw materials, wooden packaging materials, in addition to changes in reinforcing steel prices, metal prices, and non-ferrous metals contributed to this increase, while few categories fell in annual terms, such as wooden chips and particles.

This announcement came after the German government reported its highest inflation level since 1993, as the Consumer Price Index stood at 3.9% in August. This inflation level is being linked with supply shortages caused by the pandemic. The fact that inflation is surging in the Eurozone has pushed the European Central Bank to slow down its bond purchasing program, though it decided to keep the cash rates unchanged at 0%. For the moment, the institution has not expressed any intention to hike interest rates.

Germany is currently struggling with the spread of the delta variant, which is believed to be more transmissible than other strains. Since the beginning of the pandemic, 4,151,810 cases have been reported, including 93,585 related deaths, making Germany one of the most affected countries in Europe and in the world. 

To stop the spread of the virus, the German government is now pursuing an aggressive vaccination campaign. So far, 105 million doses of the vaccine have been distributed among the local population, with 52.3 million individuals now fully vaccinated, accounting for 63% of the total population.

Germans are set to vote in the upcoming parliamentary elections on September 26. The Social Democratic Party (SPD) is now leading in the polls, over Angela Merkel’s Christian Democratic Union (CDU), now under Armin Laschet’s leadership. Merkel is leaving her post as the German chancellor after 16 years and after winning four national elections.

Regarding the rise in the inflation level, Merkel’s successor claimed that he is confident that the ECB will keep it under control, adding that despite this, an eventual rise in the interest rates level will cause the debt burden to become an even more prominent problem.

Chancellor Angela Merkel leaves a strong economy, despite the negative effects of the pandemic on the country’s economic performance. The German economy has grown by 34% since the beginning of her tenure, while public debt levels are now relatively low mainly thanks to the 2009 budget law.

Since the beginning of the week, the euro has dropped by 0.14% against the US dollar, losing ground for the third consecutive week and closing yesterday’s session at the 1.1730 level. The euro had gained 0.04% against the greenback earlier in the session. By 8:17 GMT, the euro dropped by 0.14% against the dollar, falling to the 1.1709 level.