The Deutsche Bundesbank projects that inflation in Germany will remain noticeably elevated into next year. In its monthly report published on Monday, the central bank stated that inflationary pressure triggered by commodity price shocks is unwinding only slowly.
While there are currently few signs that inflation will follow a trajectory as steep as the one observed after the start of the conflict in Ukraine in 2022, returning to the targeted two percent level will take some time. In September, consumer prices rose by 3.3 percent, marking the highest increase in nearly three years, driven by record-high prices for gasoline and diesel as well as expensive heating oil. This followed a rise in world market prices for crude oil above 100 dollars per barrel due to the war involving Iran.
The Bundesbank noted that historical experience shows such shocks take time to affect the entire consumer basket. The dynamic of consumer prices for gas, electricity, food, other goods, and services is expected to increase only gradually. Additionally, services had already experienced above-average price increases prior to the Middle East conflict, supported by pronounced wage growth.
At the same time, the central bank considers a repetition of the high inflation phase of 2021 and 2022 currently unlikely. The recent energy price increase is concentrated more heavily on oil and refined products rather than gas and electricity, which is attributed to long contract durations, partially fixed tariffs, and supplier hedging strategies. Furthermore, the conditions lack simultaneous large fluctuations in agricultural raw material prices and currency shocks, while demand remains weaker and supply chain conditions are more favorable. Under these starting conditions, the Bundesbank stated that the probability of companies adjusting prices more frequently and passing on cost shocks more strongly than usual is lower.
