Germany: Will Imported Inflation Jeopardise Price Stability?

In the Joint Economic Forecast of the six German economic research institutes this Spring, the increase in consumer prices in 2000 was forecast to be 1.5%. Since April, when this forecast was published, the euro again markedly depreciated vis-à-vis the currencies of other important industrial countries, and the price for crude oil on world markets is again on the rise, after a short-lived price decline. Is a revision needed of the recent inflation forecast for Germany? This article argues that the outlook for consumer prices has worsened somewhat in comparison to last year but still remains favourable. Key factors in the relatively high stability of consumer prices are the constancy of unit labour costs and intensive competition in upstream production stages. However, the strong economy and high capacity utilisation rates will give enterprises the opportunity to raise prices here and there to pass on cost increases to consumers. On balance, however, the increase in the cost of living this year and in 2001 in Germany should remain under 2%. In a historical comparison, this is still a quite strong price stability.