The German economy ministry said on Monday it expects the country's inflation rate will decline noticeably at the beginning of 2022 as the effects of one-off factors sputter out.
A base effect, linked to a cut in value-added tax (VAT) in 2020 within the frame of the government's coronavirus relief measures, has contributed to the high inflation rate of 4.5% Its impact has been compounded by climbs in prices for raw materials and energy products.
The ministry's staff also noted that supply bottlenecks have also become more entrenched. This suggests that the country's industrial activity, particularly, its important automotive industry, is likely to stay restrained in the coming year despite a backlog of orders.
However, the weaknesses in the industrial sector are expected to be offset by service providers, which see an improvement as coronavirus measures relax, the ministry added.
According to the ministry's estimates, the German economy will grow only slightly in the fourth quarter of the year.