German inflation accelerates more than expected towards end of 2024

While eurozone inflation retreated rapidly in 2024, it’s now seen fluctuating around its current level

Mon, 06 Jan, 2025 - 17:46

German inflation accelerated more than anticipated last month, backing the European Central Bank (ECB) plans to keep cutting interest rates only gradually.

Consumer prices rose 2.9% from a year ago in December, up from 2.4% the previous month. The rise was driven by energy and food costs, the statistics office said.

German short-term yields pushed higher after the release. The yield on two-year debt was up four basis points at 2.2%, while traders trimmed the bank's rate cut bets slightly.

Monday's data follows figures from Spain showing faster-than-expected price gains of 2.8% last month. Economists also see the eurozone number, due Tuesday, ticking up to 2.4%.

Such an outcome would probably make bigger rate cuts, which some bank members had floated, less likely. While eurozone inflation retreated rapidly in 2024, it’s now seen fluctuating around its current level. Officials still plan to hit their 2% goal by year-end.

In Germany, factors including an increase in the cost of the nationwide public transport ticket and a higher national carbon price are set to keep inflation pressures elevated — before snap elections next month that look set to end Olaf Scholz’s stint as chancellor.

Like other incumbents, the cost-of-living crisis that struck after Russia invaded Ukraine in 2022 has taken a toll on Germany’s leader. The Bundesbank only sees inflation easing to 2.4% this year from 2.5% in 2024, before returning to the European Central Bank's target in 2026.

Underlying prices are a key concern, especially in the services sector. Inflation in that part of the economy has been stuck at around 4% in the eurozone, driven by robust wage increases to offset the inflation of recent years.

German services inflation edged up to 4.1% from 4%, according to national data.