Brussels (Brussels Morning) According to preliminary records of the German Federal Statistical Office (Destatis) released on Monday, annual inflation rate reached 3.9% this month.
Destatis pointed out that the last time inflation was higher was at the end of 1993, when it stood at 4.3%, according to DW reporting on Monday.
Consumer prices in Germany have been rising for months due to tapering of temporary reduction of value-added tax (VAT) and growing prices of food and energy. The VAT reduction was implemented last year with the aim of cushioning the blow of the crisis by spurring consumption.
According to economists, inflation will continue rising in the coming months, but growth will be temporary.
Christine Volk, chief economist at KfW investment bank, reminded that the European Central Bank (ECB) set the target for inflation at 2% and pointed out that a return to this level was likely.
According to central bankers, rising inflation is a temporary effect of economic disruptions caused by restrictions. They note that demand dropped steeply and returned quickly, which made prices volatile.
They argue that prices will stabilise when businesses hit by the crisis recover fully, disruptions to supply chains are resolved and the global economy normalises.
Critics are sceptical
On the other hand, critics warn that inflation could remain high longer than central banks expect, calling for lower rates closer to 2%.
Brigitte Granville, Professor of International Economics at Queen Mary University of London, noted in July that inflation is usually seen as a problem when it exceeds 5%.
High inflation erodes the value of savings and assets such as bonds, but benefits borrowers by reducing debt in real terms.
German Federal Bank president Jens Weidmann noted in July that his advisers expect inflation to approach 5% in Germany this year, according to Reuters reporting on Monday.
He expressed concern that ECB’s expansive monetary policies could be extended for too long.