Preliminary data from the German statistics office Destatis has revealed that German inflation fell more than expected in October, reaching its lowest level since August 2021. The decline was primarily driven by lower energy prices.
According to the data, consumer prices in October were 3.8% higher compared to the same month last year, down from the 4.5% seen in September. Economists polled by The Wall Street Journal had anticipated a reading of 4.0%, making the actual figure cooler than expectations.
Energy prices experienced a notable decrease in October, falling by 3.2% compared to a 1.0% increase in September. This decline can be attributed to high prices during the same period last year when Germany faced a shortage of cheap Russian imports ahead of winter.
On the other hand, food prices continued their upward trend, rising by 6.1% compared to October 2022. However, this increase was lower than the 7.5% rise observed in September, according to Destatis. Inflation in services also slowed down, with a rate of 3.9% in October compared to 4.0% the previous month.
Core inflation, which excludes volatile food and energy prices and is closely monitored by policymakers at the European Central Bank (ECB), decreased to 4.3% in October from 4.6% in September, as reported by Destatis.
Based on harmonized EU standards, headline inflation in October stood at 3.0%.
These inflation figures come in the wake of data showing a 0.1% contraction in the German economy during the third quarter, which was smaller than economists had anticipated.
The combination of subdued inflation and declining German GDP could signal the end of the ECB’s recent series of interest rate hikes. Last week, the bank decided to keep rates unchanged after ten consecutive meetings with rate increases, especially considering that German inflation is now below the ECB’s deposit rate of 4.0%.
Furthermore, the inflation data from Germany, along with similar data released in Spain on Monday, suggests that headline inflation in the Eurozone will experience a significant decline in October from the 4.3% recorded in September, according to Andrew Kenningham, Chief Europe Economist at Capital Economics. Data for the entire Eurozone will be released on Tuesday.
