Inflation in Germany hits 3.1 per cent in 2021, highest since 1993

Frankfurt (dpa) – A sharp rise in consumer prices put a strain on people’s budgets in Germany last year, with inflation climbing to 3.1 per cent for the year, official data confirmed on Wednesday.

The last time a higher rate was measured was in 1993 at 4.5 per cent. In 2020, annual inflation stood at 0.5 per cent.

The upward trend in prices intensified in December, according to the Federal Statistical Office. Consumer prices rose risen by 5.3 per cent year-on-year in that month, the highest of any month last year.

Higher inflation weakens the purchasing power of consumers because they can then buy less for one euro than before.

Inflation in Europe’s largest economy was fuelled last year primarily by rapidly rising energy prices.

According to the data, energy-related costs rose 10.4 per cent compared to the previous year, after a decline of 4.8 per cent in 2020.

Consumers had to pay more in particular for heating oil (41.8 per cent higher) and fuel (22.6 per cent).

Additional factors included the end of a temporary VAT reduction put in force to encourage consumers during the height of the pandemic, supply bottlenecks and the introduction of a CO2 levy at the beginning of 2021 of 25 euros per ton of carbon dioxide.

According to Munich’s ifo economic research institute, there will be further price rises to come this year.

For the coming months, the institute expects inflation rates to be above 4 per cent and then gradually approach the 2 per cent mark towards the end of the year.

For the year as a whole, ifo now expects an inflation rate of about 3.5 per cent.

Businesses were also expecting price rises and “this will filter through to consumer prices,” said ifo expert Timo Wollmershäuser.

“Inflation will decline only slowly in the course of this year.”