The strength of the inflation figure, boosted by a 1 per cent increase in VAT to 15 per cent in the new year, confirmed the view that there is little chance of a rate cut by the Bundesbank before the spring. 'It is difficult for the Bundesbank to sound the all-clear yet. I would still bet on March being the moment for a half per cent off leading rates,' said Richard Reid, chief economist at Union Bank of Switzerland.
Administrative rises in public services, utilities and rents have kept up the pressure on the price index, despite the fact that the German economy has been slowing down dramatically since the summer of last year. But economists expect the harshness of the recession to begin pushing the inflationary trend back downwards soon, leading to an average of 3.5 per cent for 1993.
The president of the Bundesbank, Helmut Schlesinger, said on Thursday that price rises of around 4 per cent 'cannot be deemed compatible with price stability'.Reuse content