Germany fears inflation heating up

BERLIN – Inflation risks accelerating to between four and six per cent in Germany by 2013-14, fuelled by exploding commodity prices and high liquidity, the head of the German BGA trade association has said.

The European Central Bank (ECB) should therefore raise its interest rates as soon as possible, BGA President Anton Boerner said in an interview, but will not because this would exacerbate the crisis in some euro zone states.’I expect a significant increase in inflation in the second half of the year, an imported inflation due to the explosion in commodity prices and the fact that we have a huge glut of liquidity which in turn fuels those prices,’ Boerner said.’An inflation rate in the next few years, by around 2013-14, of somewhere between four and six per cent is perhaps realistic.’This would be a sizeable jump from now, with German consumer price inflation running at 1,7 per cent in December.However, data on Thursday showed producer price inflation in Germany leapt above five per cent last month, prompting European central bankers to stress the need to keep a close eye on price pressures. ‘We have a very problematic situation for the ECB, because Germany is growing very strongly and interest rates should be raised as soon as possible for Germany,’ he said.’But it cannot do that because then other euro zone countries would end up in even greater trouble.’Euro zone inflation last month exceeded the ECB’s goal of close to, but below two per cent, for the first time in two years.NO EUPHORIAGermans’ deep-seated fear of inflation – a legacy of Germany’s hyperinflation in the 1920s, when a wheelbarrow full of money was needed to buy a loaf of bread – means they expect the ECB to act to keep a lid on prices.A survey of German investors released on Wednesday showed half expect higher interest rates by July, a few months earlier than markets are currently pricing in. But raising rates now to cool price pressures in Germany is the last thing peripheral euro zone economies need as they battle with a sovereign debt crisis. On the topic of the euro zone crisis, Boerner said a restructuring of Greek debt was inevitable.’This is inevitable…and the sooner we face the facts the better,’ he said. ‘All options will have to be considered, including a buyback of bonds.’Boerner also said that German exports, traditionally the motor of Europe’s largest economy, would rise seven per cent this year and around six per cent next year.Risks to foreign trade however were the development of the economy in the United States and whether China could manage to get a handle on inflation without braking growth.’2012 will not be an euphoric year for the German economy,’ said Boerner. – Nampa-Reuters