Germany’s consumer price inflation slowed in November amid a sharp easing in energy price growth, which still remains strong, while economists cautioned that it is too early to say inflation has embarked on a downward trend in the biggest euro area economy.
The consumer price index, or CPI, rose 10.0 percent year-on-year following a 10.4 percent increase in October, preliminary data from the statistical office Destatis in Wiesbaden showed Tuesday. Economists had expected the inflation rate to remain steady.
Destatis said energy and food prices, in particular, have increased considerably since the war in Ukraine and have had a substantial impact on the inflation rate. Energy inflation eased for a second month in November, down to 38.4 percent from 43.0 percent. However, food inflation climbed further to 21.0 percent from 20.3 percent. Services costs rose 3.7 percent, which was slower than the 4 percent increase in the previous month. Rents grew 1.9 percent after a 1.8 percent rise in October. Compared to the previous month, consumer prices fell 0.5 percent in November, after a 0.9 percent increase in October. Economists were looking for a 0.2 percent fall.
Inflation based on the harmonized index of consumer prices, or HICP, slowed to 11.3 percent from 11.6 percent. That was in line with economists’ expectations. The EU measure of inflation remained unchanged from the previous month, after a 1.1 percent increase in October. The HICP was expected to edge up 0.1 percent.
Final results for November inflation will be released on December 13. Citing recent data, economists said it is too early say that inflation in German is on a downward trend, and that it has not reached its peak yet. ING economist Carsten Brzeski said the pass-through of wholesale gas prices as well as still high selling price expectations suggest that there could first be a rebound before the final peak will really be reached. “For the ECB, however, today’s German inflation number as well as the sharp drop in Spanish inflation could be reason enough to go for a 50bp rate hike and not another jumbo rate hike by 75bp at the December meeting,” the economist said. “The rate hikes up to now still need to fully reach the real economy, the uncertainty surrounding the looming recession and the upcoming further shrinking of the ECB’s balance sheet all argue in favour of slowing down the rate hike cycle and to eventually shift from policy rates to the size of the balance sheet as the ECB’s main instrument to fight inflation.” Elsewhere in Eurozone economic news on Tuesday, official data showed a sharp slowing in inflation in Spain on the back of a fall in fuel and electricity prices. Spain is among the few countries, and the only one in the big four, in the eurozone witnessing a sharp fall in inflation. The country’s inflation rate of 6.8 percent is now well below the Eurozone figure of 10.6 percent.
Economists expect the falling trend in Spanish inflation to continue in the coming months.
Unlike Germany, Spain has less reliance on Russian gas imports, and has significant regasification capacity and potential to tap into renewable energy. These have helped the country to escape the energy crisis plaguing the rest of Europe.