German Inflation Highest Since December 2023

(RTTNews) - Germany's consumer price inflation accelerated for a third month in September to reach its highest level in nearly three years on the back of a surge in energy prices, yet the European Central Bank is likely to seek more evidence to establish second-round effects of the fuel price shock on the real economy before raising interest rates again.

The consumer price index rose 3.3 percent year-on-year in September following a 2.9 percent increase in August, preliminary estimates from the statistical office Destatis showed on Wednesday. Inflation was the strongest since December 2023, when it was 3.7 percent. Economists had forecast the figure to climb to 3.1 percent in September. The EU measure of inflation that is based on the harmonized index of consumer price or HICP climbed to 3.3 percent from 2.9 percent.

Meanwhile, core inflation that excludes food and energy remained steady at 2.4 percent in September. Energy prices jumped 14.9 percent year-on-year after a 10.5 percent rise in August. Food prices were 0.4 percent higher following a 0.1 percent gain in the previous month.

Services inflation eased slightly to 2.7 percent from 2.8 percent. Goods prices increased 3.8 percent after a 3.0 percent rise in August.

Both the CPI and HICP rose 0.6 percent from the previous month.

Euro area inflation is set to remain elevated for some time as the tensions in the Middle East continue and the prospect of a drought driving up prices of food and manufactured goods in the coming months.

"As long as core inflation remains subdued, some ECB members might question the need for further hikes," ING economist Carsten Brzeski said. That said, the bank could go for an "insurance rate hike" in December as the damage of executing it would be lower than not acting, the economist added.

"If we are right and oil prices come down towards the end of this year and knock-on effects from higher energy prices remain limited, we don't see additional rate hikes in 2027," Brzeski said. "If we are wrong, the story could clearly change."