Rising inflation in Germany and Europe

ECB boss Christine Lagarde will have looked twice at the inflation figures published today. The experts on their committee expected an inflation rate of 5.6 percent for February. Now you have to note an inflation rate of 5.8 percent, as the statistics office Eurostat announced after an initial estimate. This is the highest value that the European currency community has ever measured since the introduction of the euro in 1999. This means that consumer prices alone will rise by 0.9 percent between January and February.

The Federal Statistical Office also corrected its figures for Germany for February. Yesterday, March 1, 2022, it was announced that inflation was expected to average 5.1 percent compared to February. In addition, a higher annual inflation rate for 2022 than originally forecast is also expected. As the President of the Deutsche Bundesbank, Joachim Nagel, said when presenting the annual report for 2021:

I expect that we will have to raise our forecast for the inflation rate in Germany again in 2022…, meanwhile, the experts at the Bundesbank expect that the inflation rate could reach five percent on average for the year.

Joachim Nagel, March 02, 2022

What are the reasons for the rising inflation?

Many economists have been talking about rising inflation in Germany and Europe for a long time. If this has so far been primarily attributed to the supply bottlenecks and lack of production capacities as well as the global pandemic, there is now another difficulty. Because Russia is an important energy supplier, it can be assumed that even higher energy prices can be expected in the future as a result of the sanctions imposed by the West. This variable has already increased in price by an estimated 22.5 percent in February.

As a result of the devaluation of the euro, it becomes attractive for people to place their savings in “safe deposits”. Historically speaking, gold has often offered itself as a “safe haven” in the past. But the “digital gold”, BTC, has also seen its price rise in recent days. The BTC course has increased by about fifteen percent in the past few days. Perhaps some are trying to protect themselves from the devaluation of their money. Especially for Russian citizens, this could be an attractive option after sanctions from governments and private companies.

Is now the time to switch gears?

Despite the fact that Central Bank President Lagarde spoke out against a rapid interest rate hike in the middle of last month, there is still a big question mark over the upcoming steps by the ECB. At that time, she still expected “stabilization at a high level”. She didn’t expect oil prices to continue rising at the pace they’d seen in recent months. At the time, Lagarde compared the interest rate policy to shifting gears in a car: “Nobody does it in fifth gear at full speed, you just take your foot off the gas and switch down step by step. That’s exactly what we’re doing right now. And as soon as the pace is right and the situation allows it, we’ll get the curve.”

Well, the energy prices have obviously risen at a similarly dynamic rate as before. So, is it time to switch gears, Christine Lagarde?