"Given the different combination of shocks, a repeat of the high-inflation phase of 2021-22 currently seems unlikely," the Bundesbank said, while adding, "However, inflation risks are clearly tilted to the upside." The assessment, published Monday, dissects today's inflation drivers and where they could go next.
It flagged elevated or rising commodity prices as among the most pressing dangers, alongside higher costs across food, non-energy goods and services that could push price growth beyond today's forecasts.
This time, the pressure is centered on oil and refined fuels, the Bundesbank said, with natural gas and electricity - crucial inputs for Germany - seeing less impact than in the prior surge. It also noted the absence of overlapping forces pushing up food prices, with demand and labor markets now weaker than a few years ago.
Under those conditions, firms are less inclined to change prices as frequently or to pass through cost shocks more than they typically would, according to the report.
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Data from Destatis and Eurostat show inflation running above target in Germany and across the bloc. Euro-zone officials expect inflation to stay elevated over the next few months because of the Iran war. According to European Central Bank President Christine Lagarde on Saturday, price growth will stay "well above target into the first half of 2027."
In December, the ECB is projected to enact its third rate hike of the year, bringing the policy rate to 2.75%. That would still be far below the 4% peak from the earlier inflation episode and just above the range often described as neutral for growth. The ECB has repeatedly said risks are skewed to the upside, warning that the longer tensions in the Middle East persist, the greater the chance that higher energy costs feed more broadly into the economy.
In plain English: the baseline is cooler than 2021-22, but the risk distribution points higher, and policy may tighten again. For rate-sensitive assets, another hike to 2.75% plus sticky energy dynamics keeps the focus on margins, pricing power and balance sheets as inflation and policy evolve.
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