MNI BRIEF: Inflation Down, Deficits Up - Bundesbank Report

A study of Germany’s 2022 price competitiveness found that Germany performed better than many of its euro area peers, despite high inflation rates and the nominal appreciation of the euro, according to the latest Bundesbank Monthly Report. However, the persistently high energy prices compared with those abroad could yet weigh on the price competitiveness of Germany and the euro area as a whole, the Bundesbank warned.

Germany’s municipalities and states face a challenging economic environment, the central bank said, with solid tax revenues unable to offset rising deficits. “The planned Growth Opportunities Act, among other things, is expected to reduce revenues,” the report states. “On the expenditure side [...] , there is a significant increase in personnel expenses as a result of the collective bargaining agreements.”

German headline inflation rose by 4.3% y/y in September (from 6.4% the previous August), with core at 4.8%, inflation is expected to remain above 4% in the near term.