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German inflation hits highest in decades, increasing pressure on ECB -Breaking

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© Reuters. FILE PHOTO Christmas shoppers fill Hohe Strasse in Cologne with masks during the COVID-19 pandemic. This was December 12, 2020. REUTERS/Wolfgang Rattay/File Photo

By Michael Nienaber

BERLIN, (Reuters) – The German consumer price inflation increased further in November and hit a record high. Preliminary data on Monday showed that this was putting increasing pressure on European Central Bank officials to take action.

According to the Federal Statistics Office, consumer prices grew 6.0% year on year after an increase in inflation of 4.6% during October.

This reading is the highest recorded rate since Jan 1997 when EU-harmonised Series began.

The CPI (national consumer price index) saw a 5.2% increase year-on-year. This was the highest annual rate since June 1992.

ZDF Television was told by Isabel Schnabel, an ECB member and board member. The central bank had been expecting a rise in interest rates but it didn’t surprise them.

Schnabel indicated that Schnabel believes inflation peaked November and it was premature for the central bank to raise rates, as prices are expected to decrease gradually in next year.

On Tuesday, preliminary euro zone inflation data will be available. It is anticipated that November’s readings will show an increase of 4.5% from the 4.1% recorded in October.

The ECB targets an inflation of 2%.

Is the DOWNWARD TEND REVEALED?

Inflation has been on the rise for several reasons, including base effects and higher energy prices. There was also a temporary pandemic VAT rate that year.

Thomas Gitzel, VP Bank analyst said that although inflation rates are expected to remain high in the next months, a downtrend should be evident.

Gitzel stated that if there is no second round effect, then the ECB goal of 2% should be already reached by mid-2022. Gitzel also said that the ECB would respond calmly to any new data.

Joerg Kraemer (DE: Commerzbank) was more worried by the new figures. He described it as a worrying indicator that seasonally adjusted consumer costs rose uncharacteristically strongly during the month.

Kraemer said that prices have risen on a wider front. It is not just energy or some products which are most affected by the coronavirus epidemic.

Although he acknowledged that inflation is likely to drop again following the turning of the year because of some special factors Kraemer claimed there was too many dollars circulating in eurozone due to the high budget deficits as well as the ECB bond buying.

Kraemer stated that the ECB must take the brake off of the accelerator and stop buying bonds. He also suggested ending the policy of negative interest rates.

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