Inflation in Germany may remain elevated for longer than is presently forecast, or even accelerate suddenly, if the monetary policy measures presently being employed are overtaken by current risks in financial markets, according to a new report from the German Council of Economic Experts (GCEE).

The new report from the five-member council predicts that the German economy will continue to be afflicted with high inflation this year. The GCEE forecasts that there will be an average inflation rate of 6.6% in 2023. It also noted that although inflation appeared to have peaked in the fall of 2022, it is still quite high, and will likely only decline very slowly.

Martin Werding, a member of the council, wrote, “Inflation is increasingly more broad-based. Higher producer prices and expected wage increases are likely to keep up consumer price inflation well into the next year.”

The German rate of inflation is only predicted to drop significantly in 2024, to 3.0%.

The report noted that the short-term outlook for the German economy improved slightly over the outlook in the fall of 2022, however conditions remain difficult. The loss of purchasing power due to inflation continues to be the “main burden for the economy in Germany and most other euro area member states,” according to the council.

The German gross domestic product (GDP) is forecast by the council to increase by 0.2% in 2023, and by 1.3% in 2024.

The chair of the council, Monika Schnitzer, said, “The loss of purchasing power due to inflation, tighter financing conditions and the slow recovery of foreign demand prevent a stronger upswing this year and next.”

The council went on to note that the current upheaval in the financial markets recently has greatly complicated the ability of central banks to counter the rising inflation, given the risks of tightening monetary policy as lenders are already enduring asset devaluations due to the presently elevated interest rates.