Germany on brink of economic meltdown as inflation sparks panic: Weve got to act!

Germany: CDU political party receives criticism from within

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Germany’s inflation rate has risen to above 4.1 percent, its highest level in 29 years. The spike in inflation is believed to have been driven by an acceleration in annual energy price growth, by 14.3 percent. Economists have shared they would not be surprised if the European Central Bank (ECB) decided to reduce its asset purchases in 2022 to combat inflation.

However, Max Borowski, German economics editor, has insisted Berlin do not hike the interest rate.

He said: “The right means to fight inflation lie with the federal government, not the ECB.

“They are only temporary factors! This has been the mantra of economists and central bankers for months about the spectacular jump in inflation rates from below zero at times in the course of last year to 4.1 percent in September.

“This is not wrong, but it is no longer a satisfactory answer to the much higher and probably longer than expected inflation.”

Speaking for n-tv, a German TV news channel, Mr Borowski noted much of the rise in prices is due to “bottlenecks in global supply chains and the resulting increase in the price of some goods”, as well as the suspension of VAT in Germany.

He added: “Economists, and especially central bankers, who only recently ignored warnings of worrying inflation, are now on the defensive.

“Critics of the European Central Bank, who have been conjuring up the inflation spectre for years and who are now triumphantly repeating their old demand for interest rate hikes in view of the current inflation trend, are still wrong, however.

“In Europe, the current price increases are not being driven by an expansion of the money supply or an overheated domestic economy, as some ECB critics claim, but rather by energy shortages and import bottlenecks.

“The ECB cannot do anything about this with its resources.

“On the contrary: a tighter monetary policy that politicians like CSU leader Markus Söder are now calling for, make investments more expensive through higher interest rates.“

 

Mr Borowski concluded by suggesting “Germans are not completely helpless” to inflation, and called for the next federal government to reduce taxes and levies to reduce the effects.

Other economists have flagged their concerns over Germany’s spiralling inflation rate, with Jörg Krämer, chief economist at Commerzbank, telling the Financial Times: “The worst is yet to come.”

He added that even if price growth does slow somewhat next year, “in the long term, we expect an inflation problem for Germany and the euro area”.

Christoph Swonke, an economist at DZ Bank, added: “Significantly lower inflation rates can only be expected once the prices of important energy sources calm down.”

It comes as German workers demand higher pay amid rising inflation, with some going on strike.

At the end of September, workers at motorhome maker Carthago went on strike over pay, demanding their share of the spoils from a surge in orders thanks to a pandemic-fuelled rise in “staycations”.

Frederic Striegler, an official at the country’s biggest union, IG Metall, said: “The motorhome industry has got so many orders and so much profits and employees just want a share of the cake”.

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