German inflation fell to a two-year low in October

FILE PHOTO: People walk along a shopping street in the southern German city of Konstanz on January 17, 2015. REUTERS/Arnd Wiegmann/File Photo Get license rights

  • German inflation is expected to continue to decline in 2024
  • Core inflation is expected to remain above the ECB’s target in the coming year
  • German economy shrank in Q3

BERLIN, Oct 30 (Reuters) – German inflation eased markedly in October, falling to the lowest level since August 2021, pointing to a substantial cooling in core inflation in the euro zone.

Germany’s inflation eased to 3.0% in October, the Federal Statistics Office said on Monday.

German consumer prices rose 4.3% year-on-year in September, compared with other EU countries.

Core inflation, which excludes volatile food and energy prices, eased to 4.3% in October from 4.6% in the previous month.

Although core inflation is likely to decline further in the first few months of the coming year, the core inflation rate will stabilize around 3% in the latest spring, Commerzbank economist Ralph Solveen said.

„We expect core inflation to be significantly higher than the ECB prefers in the coming year,” Solwein said.

Higher-than-forecast inflation is seen as one of the main risks by central bankers, as it could extend central banks’ tightening campaign and keep interest rates higher for longer.

Economists polled by Reuters expect euro zone inflation to ease to 3.2% in October from 4.3% in September. Inflation data will be released on Tuesday.

The figures, the banter and decarbonisation all argue in favor of upward pressure on price levels, said Carsten Breschi, global head of macro at ING.

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„At one point, the European Central Bank may regret redefining its inflation target at 2.0%, but not at 2%,” Breschi said.

GDP is lower than expected

Separate data showed on Monday that Germany’s economy shrank slightly in the third quarter as Europe’s largest economy continued to be weighed down by weak purchasing power and high interest rates.

Gross domestic product in adjusted terms fell 0.1% in the quarter, the Central Statistics Office said.

A Reuters poll had forecast a 0.3% economic contraction.

Looking ahead, the ECB’s monetary policy tightening, yet no change in the commodity cycle and new geopolitical uncertainties will continue to weigh on the German economy, Brzeski said.

„It looks like the German economy will be in the twilight zone between small contraction and stagnation not only this year, but next year as well,” he said.

The contraction in the third quarter is not seen as a release as Commerzbank expects the German economy to contract again in the winter half.

„Consumption is unlikely to rebound as optimists had hoped,” said Jörg Cramer, chief economist at Commerzbank.

Household consumption fell in the third quarter as high inflation continued to erode consumers’ purchasing power.

While consumption is a drag on GDP in Germany, capital investment made a positive contribution, the statistics office said.

„The net result, however, is that Germany’s economy is now firmly in the mud,” said Klaus Vistesen, chief eurozone economist at Pantheon Macroeconomics, adding that he doubts the economy will pick up in the fourth quarter.

Reporting by Maria Martinez and Miranda Murray, Editing by Rachel More, Mirel Fahmy, Angus MacSwan, Ed Osmond and Emilia Sithole-Madareis

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Maria Martinez is a Reuters correspondent in Berlin covering the German Ministry of Economy and Finance. Maria previously worked on European economics at Dow Jones Newswires in Barcelona and at Bloomberg, DebtWire and the New York Stock Exchange in New York City. He earned a master’s degree in international affairs from Columbia University as a Fulbright Scholar. Contact: +34685873768

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