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Inflation in Germany peaked after reunification, data showed Wednesday, as war in Ukraine has pushed up energy prices and dampened growth prospects for Europe’s largest economy.

Consumer prices rose in March by 7.3% year on year, according to the federal statistics agency Destatis, compared to 5.1% in February and the highest level since the establishment of the modern German state in 1990 .

Russia’s invasion of Ukraine pushed up oil and gas prices and had “a huge impact on the high rate of inflation,” Destatis said in a statement.

High energy prices would weigh on growth in Germany, a panel of government economic advisers said, cutting their output forecasts for 2022.

Germany’s Council of Economic Experts said it now expects gross domestic product (GDP) to rise just 1.8% year-on-year, down from its previous estimate of 4.6%.

The conflict in Ukraine “has significantly worsened the economic outlook”, they said in their latest report.

Experts, whose forecasts are closely watched by Chancellor Olaf Scholz’s government, said they see inflation peaking at 6.1% in 2022, with supply chain disruptions adding to pressure on prices due to rising energy costs.

– Russian energy –

The conflict in Ukraine has derailed Germany’s hopes of finally getting rid of the coronavirus pandemic and returning to growth.

With its export-oriented industries, Germany has been particularly vulnerable to supply chain bottlenecks and raw material shortages caused by the pandemic, and its recovery has lagged behind earlier times. other major European economies such as France and Italy.

“The war is putting additional pressure on supply chains already strained by the coronavirus pandemic,” said Achim Truger, a member of the expert group.

“At the same time, the prices of natural gas and oil, which have risen sharply again, are weighing on businesses and private consumption.”

Like many of its European neighbors, Germany relies heavily on Russian oil and gas supplies to fuel its industry and heat its homes.

Berlin has pledged to wean itself off Russian energy in the near future, turning to suppliers from other countries and accelerating the transition to renewable energy.

But Scholz’s government has resisted calls at home and abroad to boycott Russian energy, fearing it would have a devastating impact on the economy.

– Government support –

The last time Germany recorded such a high rate of inflation was in the fall of 1981, when oil prices rose sharply because of the Iran-Iraq war, Destatis said.

In Spain too, inflation in March reached a level not seen for almost 37 years, jumping to 9.8% against 7.6% in February.

Inflation was already high in the euro zone before the outbreak of the conflict in Ukraine, standing at 5.8% in February, well above the European Central Bank’s target of 2%.

With the war continuing to put pressure on prices, the only path for inflation in Germany was ‘up’ with the possibility that the rate could enter ‘double-digit territory’, says macro head Carsten Brzeski at ING Bank.

A survey by the German Ifo institute, also published on Wednesday, showed that “more and more companies are planning to raise their prices over the next three months”.

Consumers should prepare for “sharp price increases”, the Munich-based think tank said, with food retailers in particular expecting increases as the war pushes up the cost of agricultural imports.

Earlier in the week, Germany’s three biggest unions, IG Metall, IG BCE and IG BAU, called on the government to support particularly energy-intensive industries.

In March, the cost of household energy and fuels rose 39.5% year-on-year, according to Destatis, while food prices rose 6.2%.