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ECONOMY

German inflation spikes to 3.1 percent in March

German inflation spiked to 3.1 percent in March from 2.8 percent in February, with the gain driven by higher food and oil prices.

Published: 29 March 2008 10:47 CET

Consumer prices were up 0.5 percent from February in Europe’s biggest economy. The data from late Friday was based on six key German states, with final figures to be released on April 16.

The main reasons for the increase were the same as those in recent months, with the Federal Statistics Office pointing to “food and non-alcoholic beverages as well as mineral oil products.”

Food costs climbed 7.3 percent on a 12-month basis, while non-alcoholic drinks gained 9.6 percent. Some fuels rose by as much as 44.3 percent, the statistics service said.

Earlier on Friday, German central bank governor Axel Weber forecast that inflation in the 15-nation eurozone would remain around 3.0 percent for much of 2008 and only begin to ease in the second half of the year.

At Capital Economics, Jennifer McKeown noted that “it looks as though March’s increase was due partly to a renewed pick-up in core price pressures,” a worrying sign that inflation could be deeper rooted than in recent months.

Sylvain Broyer at Natixis added that there were risks of still higher prices down the line, saying “several providers of electricity announced a new hike in prices in April for Germany.”

Commerzbank’s Matthias Rubisch said that “given how much prices are rising, private consumption is likely to make no more than a modest recovery of 0.75 percentage points this year.”

Analysts agreed that the likelihood of an interest rate cut by the European Central Bank in the next few months was decreasing in light of growing price pressures.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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