Belgium, (Brussels Morning Newspaper) German inflation rose more than expected in March despite lower energy prices, preliminary Destatis data showed on Thursday.
Persistent inflation in Germany is adding pressure on the European Central Bank (ECB) to continue tightening its monetary policy, according to Reuters reported on Thursday.
Destatis records showed that harmonized consumer prices increased 7.8% annually in March, exceeding analysts’ expectations of 7.5%, while monthly inflation stood at approximately 1.1%, higher than the 0.8% predicted by analysts.
ING Group economist Carsten Brzeski noted, “there are still few if any signs of any disinflationary process outside of energy and commodity prices.”
He predicted that the ECB will implement two more interest rate hikes of 25 basis points each “as long as the current banking crisis remains contained” and concluded, “with any further rate hike, the risk that something breaks increases.”
Robert Habeck, German Minister for Economic Affairs and Climate Action, noted that annual inflation has slowed down from 8.7% in January and February to 7.8% in March.
“I won’t speak of a reversed trend from February to March, but the decline is strong,” he stated at an energy conference in Berlin on Thursday. Meanwhile, food prices in Germany continued to soar, increasing 22.3% annually in March.
Role of energy prices
The growth of prices slowed down in March entirely due to slower growth of energy prices, which stood at 3.5% on the annual level. Destatis pointed out that the government’s measures included in the third energy relief package helped to slow down inflation.
While annual inflation figures are dropping across the eurozone as the discrepancy between last year’s energy prices shrinks, core inflation remains higher than expected.
Destatis does not release core inflation figures, but Commerzbank estimates that it stood at 5.9% in March, in contrast with ECB’s target of 2%.
This raises concerns at the ECB that soaring energy prices have spilled over via second-round effects and made it difficult to rein in inflation.
ECB Executive Board member Isabel Schnabel noted on Wednesday that energy prices have dropped to levels before the war in Ukraine, but warned that the spike drove companies to increase margins and workers to call for higher wages, which has effects on inflation.