The Bundesbank cut growth forecasts for the German economy and predicted a sharp increase in inflation as rising food and fuel prices reduce household purchasing power and undermine confidence, Reuters reported.

Germany's central bank now forecasts a 7.1% rise in prices in 2022, well above the 3.6% forecast in December, while the 2023 figure has been raised to 4.5% from 2.2%.

Inflation this year will be even stronger than in the early 1980s, Bundesbank President Joachim Nagel said, referring to the previous period of painfully high consumer price growth.

In 2024, the final year of the Bundesbank's forecast horizon, inflation is expected to reach 2.6%, well above the ECB's 2% target for the eurozone.

The inflation rate in the euro area will not fall on its own, Nagel added.

The ECB on Thursday said it would raise rates by 25 basis points in July, with more hikes likely to be needed in September.

In terms of growth, Germany's central bank is currently projecting 1.9% growth for Europe's largest economy this year, less than half of the 4.2% forecast in December, while expected growth in 2023 has been reduced to 2.4% from 3.2%.

Despite the contraction, growth forecast for 2022 is still slightly more optimistic than the European Commission's estimate of 1.6% for Germany. “The baseline forecast scenario is based on the assumption that the war and its consequences will no longer intensify,” the Bundesbank said in a statement.