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German producer prices see biggest jump in 26 years

German producer prices posted their biggest jump in 26 years last month, according to figures released on Friday by the Federal Statistics Office.

Published: 18 July 2008 17:56 CEST

Prices gained 6.7 percent in June on a 12-month basis. “This was the highest year-on-year rate of price increase since March 1982,” when it hit 7.2 percent, the Destatis office said in a statement. The figure also represented a sharp increase from the already strong annual rate in May of 6.0 percent.

As in recent months, the cost of energy was the main driver of higher producer prices, a statement by the Destatis office said. On a one-month basis, those prices gained 0.9 percent, it added.

On Wednesday, Destatis said the German consumer price index had jumped by 3.3 percent in June, its biggest increase since December 1993. Inflation has become a global scourge, devouring household budgets and prompting consumers to cut back on many non-essential items.

In the 15-nation euro zone, inflation hit a record 4.0 percent last month on the back of soaring oil prices.

Oil prices hit records over $147 a barrel in June, pinching the purchasing power of consumers already struggling to cope with soaring food prices. On Friday, oil prices rose in Asian trading after three days of heavy falls, with New York’s main oil contract, light sweet crude for August delivery, adding 51 cents to $129.80 a barrel.

In June, German industries paid 28 percent more for petroleum products, and 16 percent more for electricity, the Destatis data showed. Farmers meanwhile, saw the cost of fertilizers grow by an average of 79 percent.

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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