Germany faces increasing inflation pressures

While governments in several emerging markets are rushing to contain inflation pressures, governments in developed economies in Europe and North America are idling in the hopes that external inflation pressures are not bad tidings of things to come. Germany could become a prime example of the mounting pressure between the need to maintain stimulative monetary policy for one part of the economy (the periphery of Europe) even while other parts heat up.

On Wednesday, Bloomberg reported: “German Import-Price Inflation Accelerates to Fastest in More Than 29 Years.” The various statistics on inflation in Germany are eye-popping:

  • Import-price inflation accelerated to 12 percent, the highest rate since October 1981, from 10 percent in November
  • In the month, prices increased 2.3 percent, almost double the 1.2 percent forecast by economists
  • Energy was 34.2 percent more expensive in December than a year earlier
  • Iron ore prices soared 98.4 percent
  • Non-iron ore metals cost 37.9 percent more
  • German consumer-price inflation accelerated to 1.9 percent last month, pushing the euro-area rate to 2.2 percent, the first time it has breached the ECB’s 2 percent limit in more than two years

For those of us who never believed that deflation was a serious threat given the monetary actions of central banks across the globe, we must now wonder how much longer will it take for inflation to start hitting consumers across a broad array of purchased goods.

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