The inflation rate in Germany held at a 12-year high in July, led by surging energy costs. Consumer prices rose 3.4 per cent from a year earlier, the Federal Statistics Office said today.
That is the fastest pace since Germany started calculating inflation using a harmonized European Union method in 1996.
Rising food and oil prices are eroding the spending power of companies and households, deepening the slowdown in Europe's largest economy and pushing German consumer confidence to the lowest in more than five years.
Even so, European Central Bank council member Klaus Liebscher said last week the bank has room to raise borrowing costs further.
"The pipeline pressures for consumer prices remain high in the short term," said Alexander Koch, an economist at UniCredit Markets & Investment Banking in Munich.
"Assuming no further big moves in commodity prices, we expect the headline rate to move down only slightly in coming months".
From June, harmonized consumer prices rose 0.6 per cent. Under a national measure, prices rose 3.3 per cent in the year and 0.6 per cent from the previous month.
Core inflation, which excludes heating oil and fuel costs, was at 2.2 per cent. Prices of package holidays increased 14 percent in the month and holiday apartments were 27 per cent more expensive. Food prices increased 0.3 per cent from June.
The ECB raised its key rate by 25 basis points to 4.25 per cent on July 3 to fight so-called second-round effects, or consumers and companies seeking compensation for higher costs by pushing up salaries and prices.
Bloomberg