German Inflation Slows More Than Expected, Lowest Since August 2021

(RTTNews) - Consumer price inflation in Germany eased faster than expected in October to reach its lowest level in over two years, thanks to falling energy prices, preliminary data from the statistical office Destatis showed Monday, and the easing price pressures validate the latest "pause" in the interest rate hikes by the European Central Bank.

The consumer price index, or CPI, rose 3.8 percent year-on-year, following a 4.5 percent increase in the previous month. Economists had forecast 4.0 percent inflation.

The latest CPI inflation rate was the lowest since August 2021, when it was at the same level, Destatis said.

Core inflation, which excludes prices of food and energy slowed to 4.3 percent from 4.6 percent in the previous month.

Prices remained unchanged on a month-on-month comparison after rising 0.3 percent in September. Economists were looking for a 0.2 percent increase.

The HICP fell 0.2 percent monthly, reversing a similar size rise in the previous month. Economists had forecast a 0.1 percent gain.

Inflation based on the EU measure of harmonized index of consumer prices, or HICP, slowed sharply to 3.0 percent from 4.3 percent in the previous month. Economists had expected 3.3 percent.

Energy prices, which grew only 1.0 percent year-on-year in the previous month, fell 3.2 percent in October.

ING economist Carsten Brzeski said German inflation could fall to around 3 percent by the end of the year.

"...today's German inflation data strengthens the case for staying put," Brzeski said.

"The clear change in tone at last week's ECB meeting has confirmed our view that what started as a pause last week will soon become the official peak in rate hikes."

Destatis attributed the fall in energy prices to a base effect due to the very high energy price level in the previous year. The latest decline was also the first since January 2021, when energy prices fell 2.0 percent year-on-year.

Food inflation slowed further to 6.1 percent from 7.5 percent and the latest increase was the weakest since February 2022 when prices rose 5.4 percent.

Services inflation also eased further, down to 3.9 percent from 4.0 percent. Good prices rose 3.6 percent, which was a much slower increase versus the 7.5 percent upside in September.

Easing price pressures at the upstream stages suggests that the rate of goods inflation will approach zero in the coming months, Commerzbank economist Ralph Solveen said.

However, the slight downward trend in services inflation is likely to gradually peter out in the coming months, as companies will increasingly pass on their higher labor costs to their customers, the economist added. Commerzbank expects the inflation rate to continue to fall, but the underlying inflation to remain significantly higher than the ECB would like in the coming year.

Official data due on Tuesday is expected to show a steep decline in the Eurozone inflation rate to 3.2 percent from 4.3 percent in September. Destatis is set to release the final German CPI results for October on November 8.