German Inflation Slows to 2.0% in December, Raising Expectations Ahead of Eurozone Data

German inflation cooled more than expected in December, falling to 2.0% year-on-year, according to preliminary figures released Tuesday by the federal statistics office. Economists polled by Reuters had expected EU-harmonised inflation to ease to 2.2% from 2.6% in November.

Core inflation — which excludes food and energy — also moderated, slipping to 2.4% from 2.7% the prior month. Regional data indicated that the slowdown was not driven solely by favourable energy base effects, but also by lower prices for leisure, clothing, and food.

Germany remains in the early stages of a sluggish recovery after two consecutive years of economic contraction, with growth in 2025 estimated at just 0.2% as Chancellor Friedrich Merz’s fiscal measures take time to filter through the economy. Despite the latest easing in headline inflation, analysts cautioned that price growth may not fall much further in early 2026, with services inflation expected to remain sticky.

Eurozone outlook turns to upcoming inflation release

The German figures arrive ahead of Wednesday’s eurozone inflation report. Early national readings suggest that headline inflation in the bloc may have dipped below 2% in December, while the core rate also likely edged lower, according to Franziska Palmas of Capital Economics.

Eurozone inflation has hovered near the European Central Bank’s 2% target, supported in part by persistent increases in services prices. Most analysts expect the ECB to keep interest rates on hold in the coming months as policymakers assess the durability of the disinflation trend and the strength of the region’s fragile growth outlook.