German central bank chief warns of unprecedented inflation

Joachim Nagel does not rule out a possible recession next winter, should the current energy crisis worsen.

The president of the Bundesbank (the central bank of Germany), Joachim Nagel, warned this Saturday in an interview with the Rheinische Post newspaper that the inflation rate could reach double digits for the first time in more than 70 years.

"Overall, even an inflation rate of 10% is possible in the autumn months. Double-digit inflation rates were last measured in Germany more than seventy years ago," Nagel recalled. Specifically, in the fourth quarter of 1951 the level of inflation stood at 11%, details RND.

The Bundestag leader stressed that the rise in prices will not disappear in 2023, due to the "high probability" that "bottlenecks in supplies and geopolitical tensions" will persist. In this sense, he pointed out that "the probability is growing that inflation will be higher" than the forecast of 4.5% made by the agency in June, and that it will reach an average of 6% "before the decimal point" on the next year.

To combat inflationary trends that have spread through the eurozone, Nagel urged the European Central Bank (ECB), which in July raised interest rates by 50 basis points for the first time in 11 years, to continue on this course. "I am sure that the Governing Council of the ECB will take the necessary monetary policy measures," he stressed.

Recession on the horizon?

On the other hand, the senior official stressed that the prices of gas and electricity have already increased "more than expected", a trend that he links to the "drastic" reduction in supplies by Russia. "If more supply problems are added, for example due to a prolonged fall in river levels, the economic outlook for the second half of the year would deteriorate further. If the energy crisis worsens, a recession in the next winter," he predicted.

Meanwhile, energy prices have broken a new record, standing at a level seven times higher than last year. The rise is driven by the increase in the cost of gas multiplied by ten in the last year, details The Financial Times. Likewise, the producer price index soared by 37.2% from July last year to the same month this year. The Federal Statistics Agency reported that this is the highest increase ever recorded.

Nagel's remarks come after the Russian energy giant Gazprom announced the suspension of gas flow through the Nord Stream 1 pipeline for three days, from August 31 to September 2, due to scheduled maintenance of the only turbine. currently operating compression.

•     Deliveries via Nord Stream 1 were reduced throughout this summer due to maintenance work, as well as problems with a turbine from the Siemens company that was stranded in Canada, which finally agreed to send the unit to Germany to be transported to Russia. , which has not yet happened.
•     From the Russian side, it is argued that the economic sanctions imposed by the EU and by other international actors hinder the maintenance operations of the gas pipeline infrastructures.