German inflation to stay elevated through next year as energy costs surge

The Deutsche Bundesbank’s newest monthly bulletin indicates that German inflation will stay markedly above target through the coming year, as the return to the European Central Bank’s 2% goal will take considerable time. September saw the highest year-on-year price increase in almost three years, largely because of unprecedented gasoline, diesel and heating-oil prices. Energy prices overall jumped by nearly 15%, reflecting supply disruptions linked to the Middle-East conflict and the Hormuz Strait blockade.

The bank cautions that the impact of the energy price shock will seep gradually into the full consumer basket, while robust wage growth sustains higher service-sector prices. Although a repeat of the 2021-22 high-inflation episode is deemed unlikely, the Bundesbank flags upward risks from further geopolitical escalation or continued supply issues. Additionally, the report notes worsening municipal finances, with record deficits limiting local investment capacity.