Germany’s inflation could hit 10% high in 70 years amid Russia’s natural gas shortage, says German central bank chief

Germany’s inflation rate could soar more than 10% this fall, the highest in seven decades due to the country’s energy crisis, the head of the country’s central bank, Joachim Nagel, told the Rheinische Posted last week.

Nagel’s comments, published on Saturday, came just after Russian gas giant Gazprom announced on Friday an unscheduled three-day shutdown of the main Nord Stream 1 pipeline that sends natural gas to Europe. Gazprom said the pipeline needed maintenance and would be closed from August 31 to September 2.

The development has pushed up natural gas prices, as Gazprom had already cut gas flows from the pipeline to just 20% of capacity, citing technical issues. Germany, which relies heavily on Russian gas, has accused Russia of weaponizing gas to retaliate against sanctions over the war in Ukraine, and is preparing for a severe energy crisis this winter.

“The inflation problem will not go away in 2023,” Nagel told the Rheinische Post, according to an official transcript from the German central bank. “Supply bottlenecks and geopolitical tensions are likely to continue.”

Germany’s economy stagnated in the second quarter of 2023, growing 0% from the first quarter, according to the country’s statistics office. Meanwhile, inflation hit a 40-year high of 7.5% in July from a year ago, mainly due to high energy prices, according to the statistics office.

The German central bank had forecast in June 2023 that inflation would reach 4.5%, but Nagel told the Rheinische Post that price gains should instead exceed 6% on average.

Germany’s energy crisis is aggravated by a summer heat wave that caused the Rhine to dry up, disrupting a key transportation route for transporting energy.

“If new delivery problems are added, for example due to prolonged low water levels, the economic outlook for the second half of the year will deteriorate further,” Nagel told German media. “As the energy crisis deepens, a recession looks likely next winter.”

German industry leaders have warned of severe economic hardship in the event of a complete Russian gas cut. To save energy, Europe’s largest economy has already started switching off heating and lighting.

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