German Inflation Eases in September, Supporting ECB Case for Potential Rate Cut

Preliminary data showed that inflation eased across key German states in September, indicating a possible decline in inflation rates across Germany as a whole, the largest economy in Europe. This development strengthens the argument of the European Central Bank (ECB) policymakers who are advocating for another rate cut.

Key State Inflation Data

• North Rhine-Westphalia: The inflation rate in Germany’s most populous state eased to 1.5% year-on-year, down from 1.7% in August.
• Bavaria: Inflation decreased to 1.9% in September, compared to 2.1% in the previous month.
• Brandenburg: The rate fell to 1.4% from 1.7%.
• Saxony: Inflation dropped to 2.4%, down from 2.6%.
• Hesse: The rate declined to 1.2% from 1.5%.
• Baden-Wuerttemberg: Inflation edged down slightly to 1.4% from 1.5%.

Economists surveyed by Reuters predict that Germany’s harmonized inflation rate will settle at 1.9% in September, down from 2.0% in August, which was already at its lowest level in over three years.

Eurozone Inflation Outlook

Germany’s national inflation data, expected later on Monday, will be closely watched, as the country releases its figures a day before the broader eurozone inflation data. According to economists polled by Reuters, inflation in the eurozone is anticipated to ease further to 1.9% in September from 2.2% in the previous month.

Anticipated Upward Trend

Inflation has already eased in other major eurozone economies, such as Spain and France. However, the ECB had anticipated a lower inflation reading in September due to the high base effect from last year’s energy prices. Inflation is expected to pick up again in the coming months.

Jens-Oliver Niklasch, a senior economist at LBBW, also highlighted the likelihood of an upward inflation trend in the longer term.