German inflation climbs to 3.8% in July

Germany's inflation rate climbed to 3.8 percent in July, the highest increase since 1993, according to provisional results published by the Federal Statistical Office (Destatis) on Thursday, reported Xinhua.

The continued increase in inflation rate was caused in particular by a base effect resulting from the temporary reduction of the value-added tax (VAT) in July 2020 as part of the COVID-19 stimulus package, Destatis noted.

According to calculations by Destatis, the VAT reduction alone led to a reduction of consumer prices of around 1.6 percentage points.

Other effects that drove inflation in Germany were the introduction of CO2 prices to the transport and housing sectors, for which a charge of 25 euros per ton of carbon dioxide emitted was introduced at the beginning of the year.

Energy prices in July, including household energy and motor fuels, even increased by 11.6 percent year-on-year after showing first signs of slowing down in the previous month.

Rents and services in Germany continued to develop moderately with a year-on-year price increase of 1.3 percent and 2.2 percent respectively, according to Destatis.

"Inflation rates will continue to rise sharply in the short term," Jens Weidmann, president of Germany's central bank (Deutsche Bundesbank) said last week. The bank's experts forecasted monthly inflation rates of up to 5 percent towards the end of the year.