German industry suffers worst shock since 1949 from Putin’s energy stranglehold

German factories suffered their biggest price shock since records began last month, when the restriction on gas supplies from Russia more than doubled energy bills.

According to the Federal Statistical Office, prices of industrial products have risen nearly 46 percent in the past year, which is the largest increase ever from records dating back to 1949, when Germany was partitioned and recovering from World War II.

Energy bills reported by companies rose 139 percent year-on-year and by more than a fifth between July and August alone.

Electricity prices have nearly tripled, jumping 175 percent, while re-distributors report a nearly 280 percent jump in prices they face.

Distribution prices for natural gas more than tripled and rose by 209 pc.

The wave came when Russia stopped energy supplies to Germany. Flows through the Nord Stream 1 pipeline were reduced in July before being closed indefinitely in late August, with Russian President Vladimir Putin saying gas trade would resume if sanctions were lifted.

Continued rising inflation poses a growing threat to a German economy that may already be in recession.

The Bundesbank recently warned of “rising signs of a recession” with “a clear, broad and prolonged decline in economic output”.

Rabobank’s Jane Foley said German producer price inflation was “shocking” and “raised the likelihood of further strong ECB policy moves in the future”.

The European Central Bank has already raised interest rates from minus 0.5 pc to 0.75 pc in a few months to combat inflation. More steps are expected soon, with the Bank of International Settlements this week urging central bankers to continue aggressive rate hikes to tame inflation.

The Swedish Riksbank today raised its key rate by one percentage point, the largest increase since 1992, in a jump that more than doubled its rate to 1.75 pc.

The US Federal Reserve and the Bank of England are expected to announce major rate hikes later this week.

In Germany, energy costs are combined with other supply shortages to spread inflation over a larger part of the economy.

Intermediate goods – typically components supplied by one manufacturer to another factory for further processing or assembly – cost 17.5 percent more last month than in August 2021.

Metals led the way, rising nearly a fifth year on year, although there may be signs that pressures are starting to ease as costs fell 1 pc between July and August.

Chemicals and fertilizers have increased by almost a third, animal feed by almost 38 percent and grain flour by almost half.

This continues to households, where a trip to the supermarket now costs a fifth more than a year ago. Butter is up by three quarters, vegetable oils by half and mil more than a third.

Barclays’ chief European economist has told clients that German industry faces a permanent blow from the loss of Russian gas, which “will likely have an impact on the competitiveness of the eurozone”.

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