German Inflation Falls More Than Expected, ECB Rate Cut Likely in September
By Maria Martinez
German inflation fell more than expected in August, declining to its lowest level in over three years, making it easier for the European Central Bank to cut interest rates in September. Inflation eased to 2.0% in August, its lowest level since June 2021, due to lower energy prices, preliminary data from the federal statistics office revealed on Thursday.
Analysts predicted a reading of 2.3% in August, after a year-on-year increase in consumer prices of 2.6% in July. German Chancellor Olaf Scholz noted that inflation was falling and real wages were rising, with the German economy showing signs of a broader disinflationary trend.
Markets have already priced in an interest rate cut from the ECB at its next policy meeting and at least one more move later this year. The German data comes ahead of the euro zone inflation release, expected at 2.2% in August, down from 2.6% in the previous month.
Energy prices in Germany fell by 5.1% compared to the same month last year, with the economy shrinking by 0.1% in the second quarter. Core inflation, excluding volatile food and energy prices, was at 2.8% in August.
Economists anticipate a bumpy ride ahead for inflation, with expectations that the rate is likely to move back towards 3% in the next six to 12 months. The ECB is forecasted to cut rates gradually until the deposit rate reaches 2.5%.
Overall, the data suggests that there is a strong possibility of an ECB rate cut in September, which could have implications for both the European and global financial markets. Investors should stay informed and prepared for potential changes in interest rates and market dynamics.