Germany’s inflation rate unexpectedly eased in January, marking its first decline in several months and reinforcing expectations of further interest rate cuts in the eurozone.
According to preliminary data released on Friday by the federal statistics agency Destatis, the annual inflation rate in Europe’s largest economy fell to 2.3%, down from 2.6% in December. Core inflation, which excludes volatile food and energy prices and is closely monitored by the European Central Bank (ECB), also slowed to 2.9% from 3.3% the previous month.
The decline was driven by a 1.6% drop in energy prices, while food price inflation also moderated. However, services inflation remained elevated.
Positive Signal for ECB Policy
German inflation had been rising in recent months after briefly falling below the ECB’s 2% target last year. The broader eurozone inflation rate had also been climbing, raising concerns that the ECB might need to delay further rate cuts.
However, the unexpected easing in German inflation is being seen as a positive development.
“This is a welcome surprise for both consumers and the European Central Bank,” said ING bank analyst Carsten Brzeski.
Analysts believe the latest figures bolster the case for continued rate reductions, with the ECB likely to stay on course with easing borrowing costs in the coming months.
Eurozone Outlook
On Thursday, the ECB implemented its fourth consecutive quarter-point rate cut as it continues to unwind the aggressive monetary tightening cycle that began in mid-2022. High borrowing costs have weighed heavily on the eurozone economy, which recorded zero growth at the end of 2024.
Meanwhile, inflation in France, the eurozone’s second-largest economy, edged slightly higher to 1.4% in January from 1.3% in December, according to the INSEE statistics institute.
