A two point increase in value added tax (VAT) in Germany would boost the annual rate of inflation in Europe's largest economy by some 0.9 percentage points, the Federal Statistics Office said today.
Germany accounts for around a third of euro zone inflation, so it would have a knock-on impact on euro zone consumer prices, albeit smaller, an official at EU statistics office Eurostat confirmed.
Germany's main conservative opposition parties said yesterday they would raise VAT to 18 percent from 16 per cent on January 1st, 2006, if they win an election expected to take place in September.
Latest opinion polls give the Christian Democrats and the Christian Social Union a lead of some 15-17 points over Chancellor Gerhard Schroeder's ruling Social Democrats.
The projected increase assumes the effects of a VAT rise would be completely passed on to consumers, Eurostat said. A spokeswoman for the office said the planned VAT hike would have a similar effect on Germany's inflation rate harmonised to compare with other European Union countries (HICP).
According to a preliminary estimate, Germany's annual rate of inflation was 1.9 per cent in June. Its HICP rose 1.8 per cent year-on-year. "Given that the goods and services included in this calculation are similar, we assume that it would have a similar effect on the harmonised rate," the spokeswoman said.
"The weight of Germany (in the euro zone index) is around 30 per cent," said Eurostat official Lene Mejer. "VAT is part of consumer expenditure so if the taxes change it has an effect on inflation."