German inflation eases as forecast

GERMAN annual inflation eased in August in line with forecasts, suggesting price pressures in Europe’s top economy may have peaked, giving the European Central Bank one more reason not to raise interest rates any time soon.

Preliminary data from the Federal Statistics Office showed consumer prices rose 2.3%, still above the ECB’s target of just under 2%, but down from a 2.4% rise in the previous month.

Month-on-month, consumer prices fell 0.1% in August on lower energy prices, compared with a 0.4% rise in the previous month. This was also in line with economists’ forecasts in a Reuters poll.

“With a weakening eurozone economy, slowing credit growth and waning inflationary pressure in the eurozone’s economic powerhouse, it is hard to find a lot of upward risks to inflation,” said Carsten Brzeski at ING Financial Markets. “Will this lead to a tide change at the ECB?”

The ECB’s preferred measure of inflation, the harmonised index of consumer prices (HICP), eased to 2.4% from 2.6% in July and versus a forecast for 2.5%.

Until recently the ECB was beset with the dilemma of balancing monetary policy for Germany’s strong economy and for struggling peripheral eurozone states.

But recent data suggest the German economy is slowing sharply, and analysts say inflation will likely also ease as a result.

In the meantime, markets have priced out expectations of an ECB rate hike for the foreseeable future, with some indications the next move could even be a cut.