German Inflation Holds Steady at 2.8% in February
The bustling shopping streets of Munich, Bavaria, were alive on February 20, 2025, as people shopped and strolled under the watchful eyes of towering buildings. Amid this vibrant scene, Germany’s annual inflation rate remained at a steady 2.8% in February, according to the latest provisional data from statistics agency Destatis.
Stable yet slightly higher than expected, the 2.8% figure surprised economists who had predicted a 2.7% rate for the month. This unchanging rate follows January’s inflation reading, also at 2.8%, which continued the trend from December.
Core Inflation and Services Print
Delving deeper into the numbers, the core inflation rate, excluding food and energy costs, dipped slightly to 2.6% in February from January’s 2.9%. Deutsche Bank Research economist Sebastian Becker praised this decline, highlighting its positive implications. Becker noted that the core inflation rate is anticipated to decrease further as wage growth moderates and the broader economy sees restrained activity.
Of particular interest was the services inflation print, which fell to 3.8% in February from 4% in the previous month. Despite this decline, the services reading was not as low as expected, contributing a tinge of disappointment to the overall data, as Becker commented.
Implications for the Euro Zone and the ECB
The German inflation figures hold broader implications for the Eurozone’s consumer price index announcement scheduled for Monday and the European Central Bank’s (ECB) upcoming decision. Following the ECB’s fifth interest rate cut in January, which has been part of a series of monetary policy easing measures since last summer, markets are anticipating another reduction in rates.
Carsten Brzeski, global head of macro at ING, emphasized that the recent inflation data from Germany and other Eurozone countries have solidified expectations for a 25-basis-point cut by the ECB next week. However, the focus is shifting towards what steps the ECB will take beyond this cut, especially considering growing resistance among policymakers to further rate reductions.
These economic developments come on the heels of the recent German election, where the conservative alliance between the Christian Democratic Union and the Christian Social Union secured the largest share of votes. With Friedrich Merz poised to potentially succeed Olaf Scholz as chancellor, economic policies have been at the forefront of discussions during the campaign.
Merz’s proposed policy changes, including tax cuts, reduced bureaucracy, social benefits reforms, and deregulation, have sparked debates on how to revitalize Germany’s economy. Destatis data indicates that Germany’s gross domestic product has been teetering on the edge of recession, with a 0.2% contraction in the last quarter of 2024, adjusted for price, seasonal, and calendar factors.
As the German economy stands at a critical juncture, the inflation figures serve as a compass, guiding policymakers and economists in navigating the complex landscape of economic decision-making. With all eyes on the upcoming ECB decision and the unfolding political transitions, the path forward remains uncertain, yet ripe with opportunities for transformation and growth.
