German inflation falls surprisingly

Inflation in Germany surprisingly fell to 2.3% at the beginning of the year. The consensus had expected an inflation of 2.6% – the same as in December.

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Dr Vincent Stamer

Commerzbank Economic Research

01/31/2025

The consensus had expected an inflation of 2.6% – the same as in December. Rising fuel prices and one-off effects such as the price increase of the Deutschland-Ticket, a monthly flat rate public transport ticket, did indeed have an upwards pressure on the inflation. However, the underlying trend of the core rate has apparently slowed considerably due to the weak economy. In view of the sharp rise in wages, however, it is too early to consider the fight against inflation to be over. In the euro area, on the other hand, inflation will likely not fall.

German inflation fell from 2.6% to 2.3% in January. This is well below the consensus and Commerzbank's expectations (both 2.6%). Inflation excluding the volatile prices for energy and food (core rate) also fell from 3.3% in December to 2.9% in January.

The drop in the inflation rate is particularly surprising because fuel prices rose sharply at the turn of the year and one-off effects such as higher prices for the Deutschland-Ticket, a monthly flat rate public transport ticket, and insurances occur in January. The easing in the underlying price pressure for services and goods excluding energy is apparently all the more significant. Inflation fell particularly sharply for clothing and entertainment services, for example. In addition, the rise in food prices also fell noticeably from 2.0% to 0.8%.

Nevertheless, the inflation problem has not been solved

The lower core rate is in itself a positive sign for consumers and could also signal lower price pressure in the coming months. However, the inflation rate also surprisingly rose in December. One should therefore not read too much into today's downward surprise either. The continued high wage inflation also suggests that the inflation problem has not yet been solved.

Inflation is unlikely to fall in the euro area in January

However, the decisive factor for the ECB is the harmonized consumer price inflation, which remained unchanged at 2.8% in Germany in January. Harmonized consumer price inflation differs from the national figures, for example in the weighting of components and the valuation of owner-occupied properties. Inflation is therefore unlikely to have fallen in the currency area as a whole. While the inflation rate in France also fell slightly, it rose in Belgium and Spain due to the strong economy. This is another reason why the ECB target of 2% is unlikely to be reached in the spring.

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