A recession in Germany is becoming increasingly likely, and inflation will continue to accelerate and could peak above 10 percent this fall, according to a monthly report from the Bundesbank, Reuters reported.

With its large industry heavily dependent on Russian gas, Germany is one of the most vulnerable countries to any disruption in energy supplies, and soaring prices are already putting pressure on production and are expected to cause even more problems.

"Declining economic output in the winter months has become much more likely," the central bank said. "The high degree of uncertainty over gas supplies this winter and the sharp price increases are likely to weigh heavily on households and companies."

High prices and gas shortages are already forcing Germany to cut consumption, with energy-intensive industries from metal production to fertilizer production being hit hard.

Meanwhile, energy costs will continue to push inflation higher.

"Overall, the inflation rate could reach 10% in autumn," the Bundesbank said. "The upside risk for inflation is high, in particular in the event of a complete stoppage of gas supplies from Russia."

That raises the risk of rapid wage increases, especially given record-low unemployment, which could perpetuate high inflation due to a spiral of wages and prices, the Bundesbank warned.

The ECB raised interest rates from a record low last month to beat inflationary pressures, but further hikes are almost inevitable as the outlook for price growth does not improve.