German Prices Surge More Than Expected, Most Since Early 1990s

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast

German inflation jumped to the highest level since records began after reunification in the early 1990s, with soaring energy costs burdening households and companies even before the government activated an emergency plan to manage limited supplies.

Consumer prices surged 7.6% from a year earlier in March -- topping the 6.8% median estimate in a Bloomberg survey for the EU harmonized reading. All but one of 27 economists saw a smaller move. A national number hit 7.3%

Together with a higher-than-expected reading from Spain of almost 10% earlier Wednesday, the data underscore the difficulty of forecasting price developments in Europe amid the heightened uncertainty unleashed by Russia’s invasion of Ukraine.

But the figures are likely to stoke expectations for an interest-rate increase by the European Central Bank, with investors already bringing forward bets on hikes in the wake of Spain’s overshoot.

Bundesbank chief Joachim Nagel said this month that the ECB shouldn’t postpone raising borrowing costs from record lows if inflation demands, and may be able to start doing so in 2022.

Even before the war began just over a month ago, Germany -- Europe’s largest economy -- faced considerable setbacks from pandemic-related supply constraints, an issue that’s now worsening.

Earlier Wednesday, it took the first step in an emergency plan to deal with limited energy supplies, as concerns mount that Russia could shut off deliveries of natural gas.

A report by the country’s Council of Economic Experts warned the same day that a halt in supplies could trigger a recession and push inflation higher. Even without that scenario, they expect prices to rise an average of 6.1% in 2022.

To help consumers and businesses weather the burden of higher costs, the government last week announced a second support package worth about 17 billion euros ($18.9 billion), including a temporary cut in fuel prices, one-off payments to households and subsidized public transport.

©2022 Bloomberg L.P.