Bundesbank Report: Inflation Risks in Germany Remain Skewed to the Upside

The German central bank, the Bundesbank, stated in a published report that inflation risks are clearly trending to the upside.

In a report published on Monday, Germany's central bank, the Bundesbank, stated that among the most prominent threats are persistently high or rising commodity prices, alongside cost increases related to food, non-energy goods, and services. While emphasizing that a repetition of the high inflation period of 2021-2022 currently appears unlikely, the report drew attention to the fact that inflation risks are clearly skewed to the upside.

Eurozone officials expect inflation to remain high in the coming months due to the war in Iran. European Central Bank President Christine Lagarde stated on Saturday that price increases will continue to remain well above target until the first half of 2027. The Bundesbank noted that, unlike several years ago, the current shock is concentrated more heavily on oil and oil products, while natural gas and electricity—which are vital for Germany—are less affected.

The bank added that there is no comparable situation driving up food costs, and that demand and labor markets are following a weaker trajectory. The statement noted that under these conditions, companies are not expected to change prices more frequently or pass cost shocks on to prices to a greater extent than normal. The European Central Bank is expected to raise interest rates for the third time this year in December, bringing them to 2.75 percent. Remaining below the 4 percent peak seen during the past inflation period, this rate sits above the range considered to have a neutral impact on the economy.