Economics and politics - comment and analysis
23. August 2023 I Heiner Flassbeck I Economic Policy, Europe

German producer prices also at minus six percent – interest rates down!

Producer prices in Germany are now also in free fall. After high minus rates were recorded in Spain and Italy in the previous months, the statistics for July also show minus six percent for Germany. And that is only the beginning. Even if this indicator does not continue to fall month after month until September (which it has done regularly in recent months), the figure for August and September will be around minus 15 percent.

This is almost exactly the scenario that Friederike Spiecker and I described in March this year. Which means nothing other than that it was easy to see back in the spring that there was no real inflation in Germany and Europe, but only temporary price increases whose clear levelling off had been apparent to any objective observer for a long time.

So it is now clear at the latest that the ECB and all those inflation alarmists were fundamentally wrong who pretended that since last summer there had been a dangerous inflation process that could only be stopped by an ECB-orchestrated slowdown of the economy. The subsequent interest rate hikes by the ECB have already caused enormous damage.

In view of the recession in Germany and the threat of recession throughout Europe, it is imperative that the leaders of German and European politics sit down immediately with the heads of the ECB to address the looming deflationary dangers and to press for a quick turnaround in monetary policy.

If the ECB waits until September and then possibly still fails to make a decision in the direction of a significant interest rate cut, it is inevitable that the economy will be badly affected not only this year but also next year. Those who remain silent now are directly responsible for the enormous damage that this misguided policy will bring.