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The Economics of Oktoberfest

Germany has been in open revolt over the European Central Bank‘s policy of buying the government debt of struggling euro-zone economies such as Spain and Italy, arguing that it is destabilizing and potentially inflationary. Now we may know why: is getting awfully pricey.

According to UniCredit‘s Munich-based economist Alexander Koch, Oktoberfest inflation — measured by the cost of transportation, two Mass (or liter) of beer and half a grilled chicken — is set to rise 3.3% this year from a year ago. (Read the report here.) That’s well above the ECB’s 2% target for euro-zone inflation. The 178th annual Oktoberfest begins in Munich on Saturday at noon with the Munich mayor’s declaration: “O’zapft is,” meaning “it is tapped.”

Beer prices have already been set at an average of nine euros per liter, an increase from last year, Koch writes in his research note: “Oktoberfest 2011: A Somewhat Different Safe Haven.”

It is unclear how much effect the escalating debt crisis in southern Europe and Ireland will have on Oktoberfest this year. Of the three countries in EU-IMF bailouts, only Ireland ranks in the top 10 of foreign visitors to Munich for the festivities, and it only accounts for 2%. But Italy, where austerity measures have been enacted to bring down a large debt load, ranks first. The U.S., which has its own economic woes, is second.

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