German inflation hits 6% Meanwhile, inflation in Germany rose to 6%, its highest rate since 1992. Inflation is a particularly sensitive topic in t
German inflation hits 6%
Meanwhile, inflation in Germany rose to 6%, its highest rate since 1992. Inflation is a particularly sensitive topic in the country, where multiple historical financial crises are seared into the public consciousness. The hyperinflation of the Weimar Republic, the 1948 currency reforms, and the fall of the Berlin Wall have all left their mark, leaving Germans more fearful, and perhaps wise to, the damage runaway inflation can wreak on their country.
Last month, Lagarde was branded ‘Ms Chanel’ over her spending on designer jackets, while ordinary Germans feel the economic pain under her financial stewardship. She had told the Frankfurter Allgemeine Zeitung newspaper that raising interest rates to counter ‘the current high level of inflation’ would be ‘wrong.’ As the effect of a rate rise would take 18 months to be felt, she believes that a hike would cause economic pain to deal with a problem that may yet prove to be temporary.
And in a interview with German public service broadcaster ZDF, ECB member Isabel Schnabel said that that ‘November will prove to be the peak,’ for inflation, and ‘there is no evidence to suggest that inflation is spiralling out of control.’ But if inflation continues to rise, the ECB may soon start to lose credibility.
This delicate economic balancing act also features a fast-changing political situation. The German Centre for European Economic Research has published a paper saying that ECB bankers from indebted EU states are using quantitative easing to bail out their insolvent governments. Meanwhile, the soaring cost of housing saw 56% of Berliners vote to expropriate 240,000 apartments from corporate landlords and return them to social housing.
And after 16 years of power, Chancellor Angela Merkel is being replaced by a disjointed coalition of the Social Democrats, the Greens and the Free Democrats under Olaf Scholz. Climate protection is a major component of their coalition deal, in a country where coal is still the primary source of electricity.
If the ECB decides to raise the base rate, the Euro will strengthen. But until then, volatility is all but guaranteed.
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