German Inflation Hits 2.6% in December 2024
Germany’s inflation rate unexpectedly rose in December, with preliminary data showing a notable acceleration in consumer price increases towards the end of the year.
According to the federal statistics agency Destatis, the annual inflation rate for December reached 2.6%, up from 2.2% in November. This figure surpassed the 2.4% forecast by analysts from financial data firm FactSet.
After dipping below the European Central Bank’s (ECB) 2% target earlier in the year, inflation has been steadily rising over the past three months. ING Bank analyst Carsten Brzeski predicted that inflation would continue to climb before eventually slowing down in the latter part of the year.
The increase was largely attributed to “less favorable” base effects related to energy prices, a trend expected by analysts. However, Brzeski noted that further wage increases, alongside the fading impact of energy prices, could keep inflation “slightly too high” for a longer period.
With the German economy likely having experienced another year of recession in 2024, the rising inflation has raised concerns about the possibility of stagflation, where sluggish economic growth coincides with persistent inflation.
While December’s inflation rate was higher than anticipated, it remained significantly lower than the peaks seen in late 2022, when the war in Ukraine and the easing of pandemic restrictions drove consumer prices up. The ECB had aggressively raised interest rates in response to that inflation surge and only began to reduce rates in 2024.
During its last rate-setting meeting in December, the ECB expressed confidence that inflation would return to its target in the coming months. Despite the December inflation uptick, analysts, including Brzeski, expect the ECB to continue lowering interest rates as the European economy shows signs of weakness.
“As long as the current inflationary pressure is expected to subside over the year, the ECB is likely to disregard the recent inflation increase,” Brzeski said.
