Ifo boss Clemens Fuest sees the German economy heading for stagflation and, in the worst case, a recession.
A phase of stagnating or even declining economic output coupled with high inflation is "very bad news," he warned on Wednesday at the Association of Foreign Press in Germany (VAP) in Berlin.
It is a crisis of a lack of goods, which is particularly evident in the case of energy.
But it also affects the value chains.
Politicians can do much less in this situation than in the case of weak demand.
She shouldn't spend more money in this situation, because rising government spending would exacerbate the problem.
At the same time, the European Central Bank should not hold back on interest rates.
A strong rate hike on Thursday would be appropriate from his point of view.
Fuest referred to forecasts that Germany could slide into recession at the beginning of next year if there were a complete Russian gas ban: "I think that's realistic." double-digit inflation rates”.
Inflation in the euro area climbed to a record 9.1 percent in August.
According to the head of the Bundesbank, Joachim Nagel, there is a risk that the phase of high inflation will last longer.
He therefore sees a need for a strong interest rate hike by the ECB Council, which will decide on the key interest rate on Thursday.
Several central bank heads of the euro countries had even campaigned for discussing an unusually large interest rate hike of 0.75 percentage points.
Since the interest rate turnaround in July, the key interest rate in the euro area has been 0.50 percent.