Germany registered a surge of 2.4% during the month of October exceeding the target benchmark set by the European Central Bank (ECB) of 2%, according to the recent update by the German statistics office, Destatis. This Inflation level is higher than the 2.1% levels expected by the economists. This increase is a sharp change from the previous month’s level of 1.8%. The Inflation level changes are harmonized when reported for the time periods under study across the Eurozone. Excluding ever-volatile food and energy categories, core inflation came in at 2.7% back in September versus 2.9% in the latest October estimates. Inflation in services also recorded a growth reaching 4% in October from 3.8% recorded previously. The persistent rises in core inflation imply that there are still underlying inflationary pressures and analysts warn that inflation will not be brought down to the ECB’s target rate in the nearest future.
Sebastian Becker, an economist at Deutsche Bank, made a comment that even though there could be some short-term inflationary effects like those imposed on it by base effects, the labor market, which is softening, could avail some disinflationary tendencies extending to the year 2025. This is at the time that Germany’s labor office is reported to have of an uptick in unemployment that was worse than expected for October, which may have implications for decreased consumer spending.
The release of inflation data comes against the background of preliminary GDP data available for Germany for the third quarter. The economy expanded by 0.2% on quarter which was a positive surprise to most analysts expecting a 0.1% decline. This development saved Germany from a technical recession, which is defined by two succeeding quarters of negative growth. In the same breath, Destatis downwardly revised the contraction rate of the GDP in the second quarter to 0.3% from the reported 0.1% decline.
Speaking to journalists, the global head of macroeconomics at ING Carsten Brzeski, predicted that inflation will remain sticky in the near term. He however predicts that inflation will settle at the range of 2%-3% for most of 2025. This will be as a result of tendrils of base effects of energy prices fizzling out while wage inflation will still tighten its chokehold on prices.
Germany’s consumer price inflation data release is out of the sync with the expected release of the euro zone consumer price inflation data, which is due on Thursday. With Europe’s largest economy struggling to contain inflation and a quarter protective growth, financial markets will keenly watch how the ECB will adjust the next phase of its monetary policy.
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