Bundesbank: Inflation risks in Germany are clearly upward

In the report published on Monday and examining the current dynamics, the German Central Bank, Bundesbank, stated that the most obvious dangers include high or increasing commodity prices and cost increases for food, non-energy products and services.

"Given the different combinations of shocks, a repeat of the high inflation process in 2021–22 seems unlikely at the moment. However, inflation risks are clearly on the upside," the Bundesbank report stated.

Eurozone officials expect inflation to remain high in the coming months due to the war in Iran. Price increases will continue to be "well above target until the first half of 2027," European Central Bank President Christine Lagarde said on Saturday.

The Bundesbank stated that, unlike a few years ago, the current shock was concentrated more on oil and oil products, while natural gas and electricity, which are particularly important for Germany, were less affected. The bank also added that there is no similar situation that drives up food costs, while demand and labor markets follow a weaker course.

"Under these conditions, companies are not expected to change their prices more frequently or reflect cost shocks to prices to a greater extent than normal," the statement said.

The European Central Bank is expected to increase interest rates for the third time this year to 2.75 percent in December. While this rate remains well below the 4 percent peak seen in the past inflation period, it is slightly above the range where borrowing costs are considered to have a neutral effect on the economy.

The ECB has repeatedly stated that inflation risks are upward. Officials have warned that the longer the situation in the Middle East remains unresolved, the more likely it is that higher energy costs will spill over into the overall economy.