German inflation rose to its highest level in nearly 50 years in August, surpassing a three-month high, according to data, bolstering the case for the European Central Bank to hike interest rates by another basis point next month.

Consumer prices (HICP), which have been harmonised to be comparable with inflation data from other European Union countries, increased by 8.8% year on year, following an unexpected 8.5% rise in July, according to the federal statistics office on Tuesday. The reading was consistent with an analyst poll conducted by Reuters.

The increase comes despite government anti-inflationary measures, such as lower public transportation fares and a fuel tax cut, which are set to expire on August 31.

Analysts expected that without any additional measures, inflation in Europe’s largest economy might reach double digits by the end of 2022.

“Judging by the current inflation rate and what is still to come, the ECB should actually launch a jumbo interest rate step,” said VP Bank chief economist Thomas Gitzel.

The ECB hiked its deposit rate by 50 basis points to zero in July, and a similar move was expected for September until recently, but a number of policymakers argued for a 75 basis point increase as well.

At 8.9 per cent, eurozone inflation has already surpassed the ECB’s 2% target and may exceed 10 per cent in the coming months. more info

German inflation rose to 8.7% in May, the highest level since the winter of 1973/1974, when the first oil crisis triggered a new and difficult-to-control inflationary cycle, according to the office at the time. 

Energy price increases caused by the Ukraine war have been the primary driver of higher inflation; energy prices in August were 35.6% higher than the same month last year.

(Adapted from StreetInsider.com)

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