Germany’s central bank chief Joachim Nagel has warned that the country’s inflation rate could surge to over 10 percent in the autumn amid an energy squeeze prompted by Russia tightening gas supplies.
“The issue of inflation will not go away in 2023,” Nagel told Rheinische Post. “Supply bottlenecks and geopolitical tensions are likely to continue,” he added, noting that Russia has “drastically reduced its gas supplies” to Germany, and “natural gas and electricity prices have risen more than expected.”
“The probability is growing that inflation will be higher than previously forecast and that we will have an average of six before the decimal point next year,” he noted, pointing out that Bundesbank officials had expected inflation to be 4.5 percent for 2023 in their June projection.
“Overall, an inflation rate of 10 percent is even possible in the autumn months,” Nagel said.
The largest single pipeline carrying Russian gas to Germany, Nord Stream 1 will be closed from Aug. 31 to Sept. 2, according to the company.
In July, Gazprom restored natural gas supply through the pipeline to only a fifth of its capacity following a previous 10-day shutdown for “annual maintenance.”
Russia ‘Weaponizing Gas’
However, Germany which is highly dependent on Russian gas, has accused the Kremlin of weaponizing gas in response to sanctions over its invasion of Ukraine.The energy squeeze has resulted in heightened prices, though, with high energy costs driving the bulk of the country’s inflation in July.
In an effort to conserve energy, Germany, which has vowed to reduce its dependence on Russian energy, has begun rationing hot water, dimming its street lights, and shutting down swimming pools.
The current energy crisis in Germany is being further exacerbated by an ongoing summer heatwave that has caused the Rhine to dry up, making it harder to transport cargo and energy.
“If further delivery problems are added, for example, due to prolonged low water levels, the economic prospects for the second half of the year would deteriorate further,” Nagel told the Rheinische Post. “As the energy crisis deepens, a recession appears likely next winter.”