Germany's Bundesbank warned on Monday that Russia's war on Ukraine could slow down the nation’s economic recovery and push up prices.
The effects of the war are likely to have a noticeable impact on economic activity in Germany starting in March, the bank said in a report.
High energy prices due to war reduced the consumption of households and the production of energy-intensive industry, the bank said, adding that inflation is likely to rise further in the coming months, especially due to energy prices.
Problems in the supply chains have worsened again with the war, and the recovery of the German economy in the second quarter of the year will be much weaker than expected, the bank stressed.
Food and industrial good price hikes are possible as a result of the decline in wheat exports from Ukraine and Russia, or new disruptions in supply chains, it added.
Annual inflation in Germany rose from 4.9% in January to 5.1% in February before even the latest rise in oil and gas prices, fueled by Russia's war on Ukraine launched on Feb. 24.
The Kiel Institute for the World Economy (IfW), one of Germany's leading economic institutes, stated on March 17 that the sharp increase in raw material and production costs has not yet been fully reflected to consumers.
It added that high inflation will be seen in Germany throughout the year, with the additional costs being fully reflected on consumer prices.
Institute economists expect inflation in Germany to rise to an average of 5.8% this year – the highest level since East and West Germany reunited in 1990.
