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ECONOMY

German inflation reaches 3.0 percent in May

German inflation reached 3.0 percent in May as the cost of energy stoked consumer price increases in the biggest European economy, figures released Friday by the Federal Statistics Office showed.

Published: 13 June 2008 09:21 CEST

On a monthly basis, German consumer prices gained 0.6 percent, the stats office said. Energy prices pulled overall inflation higher, and when they were stripped out, the annualised rate dropped back to 1.9 percent, though “energy costs in the total expenditure of households was less than 10 percent,” the report noted.

May marked the second time this year that German inflation has reached the 3.0 percent threshold, following an increase of 3.1 percent in March. A breakdown of the numbers showed that fuel prices climbed by an average of 12.3 percent from May 2007, with diesel fuel posting an increase of 26.4 percent, nearly erasing a previously significant difference with petrol.

Among other sources of energy, the cost of electricity gained 7.4 percent and the price of gas was 4.7 percent higher on the year. Food products were up by 7.5 percent, with milk, cheese and eggs gaining 18.9 percent.

Some decreases were also seen, in particular for information processing equipment such as computers, the price of which fell by an average of 15.7 percent. The cost of film and still cameras decreased by 11.7 percent, while communications prices were 3.6 percent lower and telecommunications equipment cost 16.3 percent less on average.

When calculated according to a harmonised consumer price index (HICP) that allows for comparison across the 15-nation eurozone, German inflation came in at 3.1 percent on an annual basis and 0.7 percent on the month.

The president of the European Central Bank, Jean-Claude Trichet, said last week that the ECB might raise its main lending rate by a small amount in July to quash expectations that eurozone inflation could spiral out of control.

The bank has raised its forecast for inflation this year to 3.4 percent, and its estimate for 2009 to 2.4 percent.

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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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