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Rising energy prices have pushed inflation in Germany to its highest level in two years.

According to preliminary calculations by the Federal Statistical Office, consumer prices in April were 2.0 percent above the level of the same month last year.

According to the Wiesbaden authority on Thursday, the last rate of inflation was this high in April 2019. From March to April 2021, consumer prices rose by 0.7 percent.

Inflation in Europe's largest economy has risen steadily since the beginning of the year.

In January the inflation rate was 1.0 percent, in February it was 1.3 percent and for March 2021 the statisticians had calculated 1.7 percent.

Two factors in particular are driving inflation: The value added tax, which was lowered for half a year in the Corona crisis, has been back at its old level since January.

In addition, since the beginning of 2021, a levy of 25 euros per tonne of carbon dioxide (CO2) emitted has been due, which is generated when diesel, petrol, heating oil and natural gas are burned.

This is causing the prices for heating and refueling to climb.

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In April of this year, consumers in Germany had to pay 7.9 percent more for energy than a year earlier.

Food prices rose by an average of 1.9 percent.

Inflation is likely to continue to rise

The inflation rate is an important yardstick for the monetary policy of the European Central Bank (ECB).

The central bank is aiming for an annual inflation rate of just under 2.0 percent for the entire euro area with its 19 countries in the medium term - far enough away from zero.

After all, prices that are permanently low or falling across the board could tempt companies and consumers to postpone investments.

That can slow the economy down.

In Germany, the harmonized consumer price index HICP, which is decisive for ECB monetary policy, was, according to preliminary calculations by the Federal Office, in April 2.1 percent above the level of the same month last year and 0.5 percent above the level of March 2021.

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According to estimates by economists, inflation will continue to rise both in Germany and in the euro area in the current year.

“Energy prices are unlikely to rise in the coming months,” explains Commerzbank economist Marco Wagner.

"However, since they had fallen over long stretches of the past year, the year-on-year comparison will increase significantly in the coming months and drive up the rate of inflation."

Added to this is the effect of the temporary VAT cut in the second half of 2020. Wagner expects that inflation in Germany will temporarily rise to three percent in the second half of 2021 as a result of both effects.