An economist at the Leibniz Institute for Economic Research (RWI) has warned that inflation in Germany could temporarily rise to 6% if the Iran war drags on for more than four weeks.
“High oil prices drive consumer prices. In the case of a prolonged war, inflation could temporarily rise to 6% this year,” Torsten Schmidt told the Rheinische Post newspaper in remarks published on Friday.
That would wipe out economic growth and push Germany into a fourth consecutive year of recession, he said.
If the war lasts more than four weeks and Iran continues to destroy oil and gas facilities in the Gulf states, real shortages could emerge on the global market, Schmidt said.
“In that case, I also consider an oil price of $150 per barrel possible,” he added.
If the war ends by the end of the month, however, inflation would not rise as sharply, Schmidt said. “The inflation rate will climb to 3% in the summer. For the full year, we expect 2.6%.”
Fuel prices are also likely to remain elevated in the near term, according to Schmidt.
“Prices for petrol and diesel will initially remain at a high level, around €2 [$2.30] per litre,” he said.
Schmidt also expressed concern about Germany’s gas supply, noting that storage facilities are currently only about 20% full.
“I see the risk that we will not be able to fill the gas storage facilities before winter – especially if the Iran war lasts longer than expected,” he said.
At current high prices, traders have little incentive to store gas, Schmidt added.
“With gas, we are literally playing with fire,” he said, suggesting the creation of a strategic gas reserve similar to strategic oil reserves.