German Central Bank Issues New Warning on Inflation

According to the German central bank, inflation is expected to decrease to 2.8 percent this year, but it may not subside as quickly as anticipated. The central bank has warned that inflation remains persistent, particularly in the service sector, where rising wages and cost pressures are significant factors driving inflation.

In January-March, contractual wages and fringe benefits in Germany rose by 6.2 percent from a year ago compared to a 3.6 percent increase in the previous quarter. The central bank predicts a sharp increase in contractual wages this year, with continued strong growth thereafter. These rising labor costs are expected to impact food prices next year and potentially accelerate energy price inflation.

The German economy is forecasted to grow by 0.3 percent this year, followed by 1.1 percent growth next year and 1.4 percent in 2026, according to the central bank’s business cycle forecast. Inflation is predicted to decrease to 2.7 percent next year and 2.2 percent in 2026, which will have a significant influence on the euro area’s consumer price index.

Meanwhile, the European Central Bank (ECB) recently decided to lower its policy rates due to a considerable slowdown in inflation within the euro area. Concern about the slowdown of inflation has led many economists to believe that the ECB will lower its key interest rates next fall further than previously anticipated before reaching its goal of price stability with an inflation rate of two percent in the medium term.

The ECB predicts that the euro area economy will grow by 0.9 percent this year, 1.4 percent next year, and 1.6 percent in

By Sophia Gonzalez

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