Germany expects inflation to peak at 3% before falling

Germany’s government expects inflation to rise to three percent in 2021 before subsiding over the next years, official estimates published on Wednesday showed.

“Bottlenecks and recent sharp rises in global energy prices” have pushed the rate of inflation up, the economy ministry said in a statement.

The forecast increase in 2021 would be the highest since 1993, when inflation was 4.5 percent.

Inflation would subsequently fall to 2.2 percent in 2022 and 1.7 percent in 2023, the German government predicted.

The rate of inflation would “already reach a significantly lower level by the turn of the year”, as one-off effects driving inflation, such as a temporary reduction in German VAT, would no longer factor into the calculation, the economy ministry said.

The government introduced the temporary VAT reduction in 2020 to mitigate the impact of Covid-19 lockdowns on the economy, lowering the base against which current price rises are measured.

Other inflation drivers would also begin to “lift”, German Economy Minister Peter Altmaier said in a press conference, while the government expects energy prices to “consolidate and partially sink”.

Gas prices have surged in Europe in recent months as demand has soared with economies emerging from their Covid-induced restrictions.

“We hope that this development in energy prices has reached a ceiling,” Altmaier said.

In September, prices rose in Germany by 4.1 percent year on year, according to the federal statistics agency Destatis.

The economy ministry on Wednesday revised down its estimate for growth in 2021 to 2.6 percent from its previous estimate of 3.5 percent, made in April.