German inflation fell for the second month in a row in September, as energy prices pulled back. However, food prices rose at a faster pace.
The preliminary estimate for the year-on-year German inflation rate for September was released on Monday afternoon, coming in at 1.6%, according to the Federal Statistical Office. This was less than August’s 1.9%, as well as analyst expectations of 1.7%, while also being the lowest figure since February 2021.
The fall in inflation was mainly because of energy costs falling to -7.6% in September, down from -5.1% in August. The cost of goods also dropped 0.3% this month, after staying stable last month.
However, food prices increased at a faster rate, at 1.6% in September, up from 1.5% in the previous month. Services inflation, on the other hand, fell to 3.8% this month, down from 3.9% in August.
The German core inflation rate, which does not take energy and food prices into account due to their inherent volatility, hit its lowest figure since January 2022, at 2.7% in September. This was a slight fall from August’s 2.8%.
On the other hand, the preliminary estimate for the month-on-month German inflation rate in September came in at 0%, up from -0.1% in September. However, this was still below market expectations of 0.1%.
Kyle Chapman, FX analyst at Ballinger Group, told Euronews Business: “The sub-2% inflation prints are building up across the bloc now, and tomorrow’s eurozone-wide report is set to be an undeniable sign that the European Central Bank (ECB) needs to pick up the pace in cutting rates.
Policymakers are going to have to face up to a miserable growth outlook and continued disinflation when they meet in October, and it is hard to see where the ECB’s hawks are going to find the ammunition to argue for another pause. Admittedly, much of the progress on the headline is the result of energy base effects, but prices also shrunk marginally on a month-on-month basis.”
As the German inflation chart below shows, the year-on-year inflation rate has seen some ups and downs already this year, but has been on a downward path since August.
Could the German economy be stuck in stagnation?
Although German inflation may be coming down, the country is hardly out of the woods yet, with Dutch bank ING recently warning that the German economy could be stuck in a rut. This is following the Ifo index falling for the fifth consecutive month in September.
ING said on its website: “The German economy is back where it was a year ago: the growth laggard of the eurozone with few signs of an imminent improvement. After the contraction of the economy in the second quarter, all available sentiment indicators for the first two months of the third quarter provide very few reasons for optimism.
“The cyclical hope that grabbed the German economy in the first months of the year has disappeared, mainly due to a weaker global economy but also because of fears of a cooling US economy, ongoing geopolitical tensions and domestic policy uncertainty.
“Additionally, the increasing number of insolvencies and individual company announcements of upcoming job restructurings are still hanging like the Sword of Damocles over what has been one of the few strongholds of the economy in recent years: the labour market.”
However, the Deutsche Bundesbank is taking a more optimistic view, expecting German gross domestic product (GDP) growth to increase from 0.3% this year to 1.1% in 2025 and 1.4% the following year.
Source: Euro News
