The inflation figures increase pressure on the government as households are further squeezed. “Inflation is an enormous economic risk,” Lindner told a news conference in Berlin. “We must fight it so that no economic crisis results and a spiral takes hold in which inflation feeds off itself.”
ECB policy makers including President Christine Lagarde have expressed similar concerns, fretting that stubbornly high price growth risks becoming entrenched and damping consumption at a time when industry is suffering from lingering supply bottlenecks and uncertainty about energy supplies following Russia’s invasion of Ukraine.
German inflation hit another all-time high, adding urgency to the European Central Bank’s exit from crisis-era stimulus after numbers from Spain also topped economists’ estimates.
Driven by soaring energy and food costs, data released Monday showed consumer prices in the continent’s biggest economy jumped 8.7% from a year ago in May.
The report comes just 10 days before a crucial ECB meeting where officials are set to announce the conclusion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade. Some policy makers have even floated the idea of a half-point hike, rather than the quarter-point most of them support.
Money markets wagered on 113 basis points of rate increases by year-end, up three basis points since Friday. German bonds held declines, with benchmark 10-year yields eight basis points higher at 1.05%.
While inflation is now near its peak, the squeeze for households is far from over. Consumers will have to reckon with further increases in prices because many inputs are still scarce and wholesale prices are still increasing dramatically. Surprisingly good labor-market data also indicates that the dreaded wage-price spiral could soon pick up speed.
The ECB’s decisions in June will be guided by fresh economic projections that are likely to show price pressures in the euro area as a whole remaining above the 2% target in 2023 and 2024. Data for May from the 19-member currency bloc are due on Tuesday.
Highlighting the persistent dangers, earlier on Monday Spain reported an unexpected acceleration in inflation to a record 8.5%, amid government assistance including a fuel subsidy and an increase in the minimum wage.
Chancellor Olaf Scholz has signaled further action may be taken if needed to protect households and businesses. In Germany, the lower house of parliament has passed a package of relief measures that includes a one-time payment, a child supplement and a reduction in electricity costs.