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Germany’s producer prices—the prices factories charge for their products—rose 30.9 percent in March compared to a year earlier, according to the Federal Statistics Office, the fastest rise ever recorded since the country began keeping records in 1949, the Financial Times said.
“The extent and breadth of the rise suggests that German inflation will remain very high for a long time to come,” economist Andrew Kenningham at Capital Economics told the FT.
Germany receives about 55 percent of its natural gas from Russia, the cost of which rocketed up 145 percent in March from a year earlier. The country’s overall energy costs were up 84 percent.
Higher producer prices portend rising consumer prices, as many companies will be forced to push higher costs through to retail customers.
That will dent Germany’s consumer economy, analysts said, according to the FT.
“Companies are increasingly seeing profit margins come under pressure while households see their purchasing power melting away like snow in the sun,” ING chief economist Carsten Brzeski said to the FT.
As a result, Germany’s household spending will be weaker this year than many analysts have predicted, Kenningham said.
“The danger of stagflation is real,” Christian Lindner, Germany’s finance minister, told a conference of the Free Democrats political party on 23 April. “There is a danger of impoverishment for many people.”
The country’s economy could contract by as much as 2 percent this year if the Ukraine war drags on and Russian coal, oil, and natural gas are banned, which would lead to cutbacks in energy production and industrial output, Bloomberg reported.
If investors begin to withdraw their capital from Germany, stagflation could “very quickly turn into a much more serious stability crisis,” Lindner said. “That’s why we have to take a decisive stand against this.”
The minister also counseled against raising taxes while emphasizing the need to offer financial help to businesses and households slammed hardest by inflation.
Despite those economic pressures, Lindner stood firmly in favor of maintaining sanctions on Russia to “hit Putin’s war chest,” perhaps “for months, maybe for many years, and with some probability maybe permanently,” he said.
TREND FORECAST: As the Ukraine war becomes protracted, Western nations will begin losing support for sanctions against Russia as consumer prices continue to rise and developing nations become more desperate for Russian wheat and other foods.
The sanctions are unsustainable for years, let alone permanently, unless Western economies shake off inflation—something unlikely to happen at least for the next several months.