By Geoffrey Smith

Investing.com -- Factory gate inflation in Europe's largest economy continued its record-breaking run in September, as companies again passed on sharp increases in their energy costs to buyers.

German producer prices rose by 2.3% on the month and by an eye-watering 45.8% on the year, statistics office Destatis said on Thursday.

The numbers show sustained inflationary pressure in the economic pipeline, and add to the pressure on the European Central Bank to keep raising interest rates despite the obvious slowdown in the Eurozone economy.

Destatis noted that energy prices - up 132% on the year - were by far the biggest contributor. Both natural gas and electricity were three and a half times as expensive as a year ago, also driving up the cost of available substitutes, albeit by less: heating oil prices were up 84% from September 2021.

Excluding energy prices, the annual rate of inflation has now been in decline for four months, and totaled only 14% in September. However, the impact of energy price increases is clearly visible in other goods where energy is a key input. Nitrate fertilizer prices have tripled over the last year, while food items such as butter and coffee rose by 72% and 32%, respectively.

German industry has scaled down its output in recent months, much of it unable to operate profitably with energy prices at their current levels. Industrial production in the region's manufacturing powerhouse fell in both July and August, and the German central bank and others have warned that a recession is all but inevitable.

One of the few items in Destatis' basket to show falling prices was scrap metal, down 9% due to the inability of steel mills to pay for the electricity needed to process it.

Developments since September have, however, pointed to some easing of conditions on the energy front. Wholesale natural gas prices hit their lowest in three months earlier this week in response to data showing that Germany - and the EU in general - has filled its gas storage facilities ahead of schedule in time for the winter peak. That makes the risk of rationing less likely, and should lead to a more shallow recession than was initially feared, analysts at Berenberg Bank said in a note to clients.

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