Germany: Inflation to stay high two more years — top adviser

Inflation in Germany is predicted to stay elevated for another two years, a senior government adviser warned Saturday.

"Inflation will also be an issue in 2024, and only thereafter will we maybe see it returning to 2%," Monika Schnitzer, chair of the German Council of Economic Experts, told the Rheinische Post newspaper.

Schnitzer said inflation would remain high because of so-called second-round effects as producers pass on higher costs to consumers and businesses.

She accused some firms of significantly exaggerating their price rises.

Her comments contrast with a report by the Munich-based Ifo institute last week that predicted that inflation would fall to 6.4% in 2023.

Ifo also said a predicted recession in Germany would be milder than previously thought, with growth shrinking just 0.1% compared to an earlier forecast of a 0.3% contraction.

No fear of wage-price spiral 

In the interview with the Rheinische Post, Schnitzer said she was not concerned about a wage-price spiral thanks to measured wage negotiations.

In key German industrial sectors such as chemicals and metals, unions have agreed to below-inflation pay increases in return for one-off compensation payments.

Inflation in Germany hit a record annual rate of 10.4% in October, according to the official Destatis statistics agency. Last month, the inflation rate fell slightly to 10%.

Rising prices, which began as the economy emerged from the coronavirus pandemic, have been further stoked by Russia's invasion of Ukraine.

Household energy prices were up by over half in November compared with the same period last year, spurred by soaring natural gas prices. Food prices have risen by more than a fifth over the past year.

Excluding food and energy, inflation was more like 5% in November, according to Destatis.

'Energy price surcharge needed'

Schnitzer called for a temporary solidarity surcharge or "Soli" to be introduced next year to finance the energy price caps, which seek to reduce the impact of soaring electricity and heating bills.

The proposed levy would be similar to the solidarity surcharge paid by German taxpayers to pay for reunification.

"An 'energy soli' makes sense: It acknowledges that the country is getting poorer and that strong shoulders will have to carry more of the burden than weaker ones," Schnitzer said.

The temporary levy could bring in an additional €12-13 billion ($12.8-13.8 billion) in tax revenue, she said.

With energy prices expected to remain high, Schnitzer also called on Chancellor Olaf Scholz's government to extend the life of three nuclear power plants for a further three years.

"From an economic point of view, it would make sense to order new fuel rods quickly. That would give us more security next winter," she said.

Berlin has reluctantly agreed to extend the life of the last aging nuclear power stations until April because of the energy crisis.

They were set to be decommissioned within days as part of a decadeslong policy to phase out nuclear power.

Scholz should push back pension age

Schnitzer also called for the retirement age to be raised to 69 from the current 66, because of the lack of workers to replace the increasing number of pensioners.

"Things cannot go on like this with pensions," she told the Rheinische Post. "The Council of Economic Experts proposes that eight months of each additional year of life should be spent in work and four months in retirement. Then we would reach retirement at 68 in 2046 and retirement at 69 in 2061."

Schnitzer also urged the government to stop allowing workers to retire at 63 if they had paid enough social security contributions.

The pension age is scheduled to rise to 67 by 2031.

mm/dj (dpa, Reuters)

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