Central Bank Warns of Slow Inflation Subside in Germany as Rising Wages and Cost Pressures Continue to Impact Service Sector.

The Central Bank of Germany has forecasted that inflation will slow down to 2.8 percent this year. However, in its latest business cycle forecast, the central bank warned that the increase in consumer prices, also known as inflation, may subside more slowly than expected. This is especially evident in the service sector, where rising wages and resulting cost pressures are significant factors.

The increase in contractual wages and fringe benefits in Germany was 6.2 percent from the previous year in January–March. This was significantly higher than the 3.6 percent rise seen in wages during the previous quarter. The impact of these salary increases is most noticeable in the services sector.

According to the central bank’s forecast, there will be a sharp rise in contractual wages this year, with continued strong growth in the following years. These increases in labor costs are expected to lead to higher food prices, especially in the coming year. Additionally, energy price inflation is expected to accelerate somewhat in the near future, according to the forecast.

The central bank’s new forecast also includes predictions for Germany’s economic growth and inflation rates over the next few years. The economy is expected to grow by 0.3 percent this year, 1.1 percent next year, and 1.4 percent by 2026 respectively while inflation is expected to decrease to 2.8 percent this year and then gradually decline over time until it reaches its target of 2% medium-term price stability objective