Annual inflation in Germany rose to 8.5 percent in July, from 8.2 percent the previous month, as further cuts to natural gas deliveries from Russia created fears that already record energy prices could rise further.
Official data released on Thursday showed energy prices were up 35 percent from a year ago and were a major factor driving up inflation in Europe’s biggest economy.
“Energy prices in particular have increased significantly since the start of the war in Ukraine and have had a substantial impact on the high inflation rate,” the Federal Statistics Office said in a statement. It cited the continued disruptions to the supply chain caused by the coronavirus pandemic and the steep increase in the cost of producing industrial products.
The overall rise has been surprising. Analysts had expected the inflation rate to ease, according to polls by Bloomberg and Reuters.
Until now, energy suppliers have borne the brunt of the exorbitant rise in natural gas prices. The government took a 30 percent stake in financially troubled energy company Uniper last week. But starting this fall, The government would introduce an energy surcharge of several cents per kilowatt-hour on consumer energy bills, which would be passed on to utilities. Officials expect the fee to translate into an annual increase of several hundred euros per household.
Germany, which still relies on Russian natural gas for a third of its needs, has been hit particularly hard by Russia’s decision to sharply reduce supplies of the fuel. This week, Gazprom, the energy giant, reduced flows through the Nord Stream 1 pipeline to Germany to 20 percent of capacity, a further constraint on already limited supplies.
Economists say the country is on the brink of recession, business sentiment is faltering and authorities urge citizens to cut their energy use by any means possible, even by taking a cold shower.
Last week, the European Central Bank raised interest rates for the first time in more than a decade to control rising prices amid growing concerns about an economic slowdown.
The global outlook has worsened in recent months, as inflation has risen in every corner of the economy and pandemic-induced disruptions continue to wreak havoc on supply chains. For the euro zone, the bloc of 19 countries that use the euro, the dimming outlook is particularly stark.