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German inflation reaches 28-year high

October 28, 2021

The annual inflation rate accelerated for the fourth month in a row, hitting 4.5% in October. The record level of price hikes comes as energy prices soar across Europe.

Symbol picture of energy prices
The increase in prices is largely due to the soaring cost of energyImage: DesignIt/Zoonar/picture alliance

Last month, consumer prices in Germany rose at their fastest pace since 1993, according to official data released on Thursday.

What's behind the rise in consumer prices?

The annual inflation rate continued to soar for the fourth month in a row, rising to 4.5% in October, with energy prices shooting up 18.6%, estimates from the German federal statistics agency Destatis showed. It is the energy price hike that has been cited by experts as the main reason behind the overall increase in consumer prices.

In September, prices had risen in Germany by 4.1% year on year.

"There are a number of reasons for the high inflation rates since July 2021," Destatis said in a statement, citing a temporary reduction in value-added tax (VAT) in 2020 and the introduction of CO2 pricing since January 2021.

Europe's biggest economy introduced the VAT reduction to mitigate the impact of lockdowns implemented because of the coronavirus pandemic.

Gas prices surge

Gas prices have soared across the continent in recent months. Demand has increased sharply as European economies emerge from the impact of the pandemic.

EU energy ministers discuss surging prices

Official estimates published Wednesday showed the German government expects inflation to rise to 3% in 2021 before subsiding in the coming years.

While inflation is helping firms to improve corporate margins that have suffered due to the pandemic, consumers are being hit in the pocket.

EU struggles to stem the tide

On Tuesday, European Union ministers were unable to agree upon new measures aimed at stemming the tide of increasing energy bills.

Some EU countries, among them France and Spain, are calling for structural reform of the bloc's energy market, while others have taken the stance that the crisis is only temporary and does not call for radical changes.

Nine EU member states, including Germany, are steadfast in their belief that an overhaul of the electricity market is not necessary.

jsi/wd (Reuiers, AFP)