German inflation, high for almost 50 years, strengthens the case for a bigger ECB rate hike

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BERLIN (Reuters) – German inflation hit its highest level in nearly 50 years in August, hitting a high just three months earlier, data showed, bolstering the case for the European Central Bank to raise more significant basis point interest rate next month.

Consumer prices, harmonized to make them comparable to inflation data for other European Union countries (HICP), increased by 8.8% over the year, after an unexpected increase of 8.5% in July, the federal statistics office announced on Tuesday. The reading was in line with a Reuters poll of analysts.

The rise comes despite government measures designed to stifle inflation, including cheaper public transport tickets and a fuel tax cut, which are set to end on August 31. Without any follow-up action, analysts predicted inflation in Europe’s biggest economy could hit double digits. before the end of 2022.

“Judging by the current rate of inflation and what is still to come, the ECB should actually launch a giant interest rate step,” said Thomas Gitzel, chief economist at VP Bank.

The ECB raised its deposit rate by 50 basis points to zero in July and a similar move was expected for September until recently, but a host of policymakers have also pleaded to discuss a 75 basis point hike. .

At 8.9%, inflation in the euro zone is already more than four times the ECB’s 2% target and could exceed 10% in the coming months.

German inflation hit 8.7% in May, marking the first time since the winter of 1973/1974 – when the first oil crisis led to a new inflationary cycle which was difficult to control – that inflation had been so high, the office said at the time.

Energy price hikes following the war in Ukraine were the main driver of rising inflation; Energy prices in August were 35.6% higher than the same month last year.

(Reporting by Miranda MurrayEditing by Madeline Chambers and Nick Macfie)

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