German factory prices surge at fastest pace since 1940s

German factory prices are accelerating at the quickest pace since the late 1940s, propelled by Russia’s invasion of Ukraine lighting a fuel under European energy prices, official stats published today revealed.

Producer prices jumped 33.6 per cent over the year to May, the biggest rise since Germany’s statistics agency started tracking the data in 1949.

Energy costs drove the headline jump in factory gate prices, skyrocketing an eye watering 87.1 per cent over the last year.

“Mainly responsible for the high rise of energy prices were the strong price increases of natural gas (distribution) which was +148.1 per cent on May 2021. Power plants had to pay 241.2 per cent more for natural gas than one year before,” Germany’s statistics agency said.

Stripping out energy prices, the overall producer price index increased 16.5 per cent which – although highlighting the scale of oil and gas price jumps – is still far above historical rates.

Germany relies heavily on its industrial sector to generate economic output. 

High input prices will squeeze manufacturers’ margins and strengthen incentives to curb production until costs ease. Weaker industrial activity would chill Germany’s economy.

Despite the cost squeeze, manufacturing output has held up well, with the latest S&P Global purchasing managers’ index for the sector jumping to 54.8 in May, above the 50 point threshold that separates growth from contraction.

However, higher input prices does suggest factories will pass costs on to consumer-facing firms, which will hit German households.

Consumer prices are already up 7.9 per cent annually, the quickest rise since unification.

The European Central Bank, who sets monetary policy for the group of countries using the euro (including Germany), confirmed earlier this month it will raise rates for the first time in over a decade next month to tame soaring inflation in the bloc.