German Inflation Hits 8.5 Percent, Again Driven by High Energy Prices

Annual inflation in Germany increased in July to 8.5 percent, from 8.2 percent the previous month, as further cuts to natural gas deliveries from Russia created concern that already record energy prices will climb even higher.

Official data released Thursday showed that energy prices were up more than 35 percent from a year ago and remained the most important factor in driving inflation in Europe’s largest economy.

“Energy prices, in particular, have increased considerably since the war started in Ukraine and have had a considerable impact on the high inflation rate,” the federal statistics office said in a statement. It also cited continued disruptions to the supply chain caused by the coronavirus pandemic and a leap in the cost of producing industrial products as driving the increase.

The overall increase was a surprise. Analysts had predicted the inflation rate would edge lower, according to surveys by Bloomberg and Reuters.

So far, energy providers have been bearing the brunt of the exorbitant increase in the price of natural gas. One financially troubled energy company, Uniper, was bailed out last week by the government, which took a 30 percent stake. But starting this fall, the government will introduce an energy surcharge of several cents per kilowatt-hour on consumer energy bills that will be passed along to utilities. Officials expect the charge will translate to an annual increase of several hundred euros per household.

Germany, which still relies on Russian natural gas for about a third of its needs, has been hit especially hard by Russia’s decision to sharply reduce deliveries 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 restriction on already limited deliveries.

Economists have said the country is on the edge of a recession, as business sentiment declines and officials urge citizens to cut their energy use in any way possible, even by taking cold showers.

Last week, the European Central Bank raised interest rates for the first time in more than a decade to control rising prices amid mounting concerns over an economic slowdown.

The global outlook has worsened in recent months, as inflation has risen in seemingly every corner of the economy and as pandemic-induced disruptions continue to wreak havoc on supply chains. For the eurozone, the bloc of 19 countries that use the euro, the dimming outlook has been particularly acute.