Fears rise of runaway inflation in Germany

PRICES in Germany jumped at the fastest pace since reunification this month, heightening fears of a runaway inflation crisis in the eurozone and raising pressure on the European Central Bank to drag interest rates out of negative territory.

German inflation soared by 8.7pc on the year. Energy costs, including bills and petrol prices, rocketed by 38pc, while food rose 11.1pc, according to the Federal Statistics Office.

It was only services prices, which rose by a much more modest 2.9pc, that kept inflation from booming further. Until prices accelerated late last year, Germany’s previous inflationary peak was 3.8pc in 2008.

Carsten Brzeski, an economist at ING, said it is a startling moment for the eurozone’s largest economy. “Most citizens and policymakers have hardly ever seen these kinds of inflation rates in their professional lives,” he said. Even higher inflation could be to come as the shock of energy prices spreads through more of the economy, encouraging businesses across the board to increase the amount charged to their customers, Mr Brzeski added.

“Against the backdrop of recent geopolitical events, we now expect German inflation to average more than 8pc this year, with a chance that monthly inflation rates will enter double-digit territory in the summer,” he said.

The ECB’S headline deposit rate is currently minus 0.5pc. Christine Lagarde, its president, last week raised the prospect of interest rate “lift-off ” in July. Financial markets expect interest rates will be back to zero in August and enter positive territory in October.

Much of the rest of the world is also struggling with inflation, with Spain yesterday reporting a 8.5pc rise in inflation. Inflation hit a 40-year high of 9pc in the UK in April, and price increases at 8.3pc in the US mark one of its steepest climbs in decades.