German inflation could peak at 13%, economist says

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Germany’s inflation rate has now surpassed that of the UK and could be on course to peak at 13%, economists say.

German CPI inflation rose 10% year-on-year in September, beating estimates of 9.4% and marking a sharp jump from August’s 7.9%.

By comparison, the UK inflation rate hit 9.9% in August, down from 10.1% in July.

Inflation is soaring in the euro zone’s largest economy.

“The only way for German inflation is to rise,” says Carsten Brzeski, Global Head of Macro at ING Bank.

“With high wholesale gas prices now reaching people’s homes and pockets, and increased inflationary pressure in the industrial pipeline – with producer price inflation at 45% year-on-year – inflation will test even higher levels,” he says.

The inflation basket showed that price increases were widespread and not just limited to items affected by the end of government subsidies, such as train travel.

This suggests that inflation is becoming more entrenched in the economy and will encourage the European Central Bank to hike another 75 basis points next month.

“It will be until next spring before headline inflation can start to decline with the onset of negative base effects. Based on today’s numbers, the peak in inflation could be around 13 %,” Brzeski said.

Salomon Fiedler, an economist at Berenberg, says inflation is expected to stay above 10% for the rest of the year.

Carol N. Valencia