German Inflation Rises Beyond Expectations in December Amid Higher Food Prices

Germany’s annual inflation accelerated more than forecast in December, driven by surging food prices and a smaller decline in energy costs compared to recent months. Preliminary data from the federal statistics office revealed that the annual consumer price inflation rate climbed to 2.8%, surpassing the 2.6% predicted by analysts polled by Reuters and up from 2.4% in November, based on EU-harmonized metrics.

Higher prices for CO2 emissions and insurance services are expected to maintain elevated inflation levels in January, according to analysts. Economists closely monitor Germany’s inflation data, as it provides a preview of eurozone-wide inflation figures, which are due to be released the following day.

Eurozone inflation is projected to have risen to 2.4% in December from 2.2% in November. However, experts suggest that the European Central Bank (ECB) may disregard this temporary inflation surge if current inflationary pressures are expected to ease later in 2025. The ECB has forecast inflation to stabilize at its 2% target by the end of the year, after hitting record highs in the aftermath of Russia’s invasion of Ukraine in 2022.

In Germany, the annual average inflation rate for 2024 is anticipated to decline significantly to 2.2%, compared to 5.9% in 2023. Core inflation, which excludes volatile food and energy prices, increased slightly to 3.1% in December from 3.0% in November.

Energy prices in December dropped by 1.7% year-on-year, while food prices climbed by 2.0%. Additionally, services inflation edged up to 4.1% in December, compared to 4.0% in the previous two months.

This inflation report will be the final indicator ahead of the ECB’s meeting on January 30, where policymakers will assess the economic landscape and potential monetary adjustments.