Home Economy News German inflation eases to lowest in almost three years

German inflation eases to lowest in almost three years


By Maria Martinez

BERLIN (Reuters) -German inflation eased in March, adding to the signs that euro zone price pressures are abating and increasing the pressure on the European Central Bank to start cutting interest rates.

Inflation in Europe’s largest economy slackened to 2.3% helped by lower food and energy prices, final data from the federal statistics office showed on Friday. This is its lowest level since June 2021.

German consumer prices, harmonised to compare with other European Union countries, had risen by 2.7% year-on-year in February.

“Inflation is weakening. We should therefore continue our fiscal policy, including the debt brake,” German Finance Minister Christian Lindner said on social media platform X.

The debt brake, enshrined in the German constitution, restricts the public deficit to 0.35% of gross domestic product.

“In the United States it is clear that expansionary public finances with high levels of new debt can drive inflation up again,” Lindner said.

The European Central Bank kept interest rates at record highs on Thursday but sent an even clearer signal that it may be preparing to cut them in June.

That decision may now be complicated by uncertainty as to whether the Federal Reserve will be able cut its own rates in June as U.S. inflation stays stubbornly above its goal.

Core inflation in Germany, which excludes volatile food and energy prices, was at 3.3% in March, down from 3.4% in February.

Underlying inflation is closely watched by the European Central Bank to gauge the durability of price pressures.

“In March 2024, food was cheaper for consumers than a year before for the first time since February 2015,” said Ruth Brand, president of the statistics office. Food prices went down 0.7% year-on-year.

Energy prices were 2.7% lower in March than in the same month of the previous year. Since the beginning of the year, energy prices have consistently fallen, dragging headline inflation down.

However, core inflation has barely slowed.

Germany’s inflation is supported by a rising trend in services, whose prices are increasingly dominated by a sharp jump in wage costs, as well as a rise in rents.

Prices for services overall were 3.7% higher in March on the year. Rents, with a price increase of 2.1% on the year, were significant for the price development for services.

This is due to some extent to a boost from an early Easter, as inflation in airfares jumped to 10%, Pantheon Macroeconomics chief eurozone economist Claus Vistesen said.

“We think services inflation will take a meaningful step back in April as early Easter effects reverse,” Vistesen said, adding that this should pull core inflation down significantly.

While services prices showed a strong increase, the prices for goods increased by 1.0% on the year, below the increase seen in overall inflation.

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