Germany got its inflation rate out of control for the first time in four years. Consumers had to pay for goods by 2.2% more than in 2012. Specialists read this as a sign that the largest economy in Europe is becoming more effective. On the other hand, wage settlements preserved their moderate value. This meets expectations that the European Central Bank will continue to give free rein to monetary policy to the benefit of eurozone.
Harmonized standards were employed to measure the inflation rate in Germany which gained momentum from energy and fresh food sectors that experienced a price surge. As a consequence, last month the economy increased by 2.2% in comparison to January, when the rate was at 1.9%. The findings were signaled by the Federal Statistical Office of Germany on Wednesday.
These data are better than expected. Policy makers within the European Central Bank have been looking to fasten the eurozone inflation at little below 2%. On the other hand, the success is attributed to two industries that have a volatile nature, namely energy and food prices. At the same time, other powerful segments are stagnating such as domestic price pressure despite a robust labor market and impressive economic performance.
In light of these events, the European Central Bank decided to leave monetary policy as it is for the moment. On the other hand, there were some voices in Germany that opened a discussion about the end of some incentive measures. For instance, ECB offered a bond-purchase program valued at $2.47 trillion that is going to operate until the end of the present year.
The director of the Bundesbank in Germany, Jens Weidmann, stated during an event at the central bank of Slovenia that the domestic price pressures remained lower than expected. He continued by describing the current economic situation of Germany. By eliminating the industries that are volatile from the Consumer Price Index, the core inflation rate is situating at the moment at just 1%.
An economist at Berenberg, Florian Hense, tackled the issue with the wage deals. Despite the exceptional level of employment, the negotiated wages hit the lowest rate since 2011. This year, they rose by 1.9% only. This is why Hense predicts the core inflation to increase slowly to 1.6% by the end of 2018.
Image source: 1