Headline inflation in Germany was 1.9% in August compared with the same month a year earlier, below the ECB target of 2%, according to preliminary data from the German statistics office, Destatis. That was also well short of the 2.3% rate forecast in a Reuters poll.
The month-to-month harmonized consumer price index was down 0.2%, while core inflation, excluding energy and food costs, slipped marginally to 2.8% in August from 2.9% the prior month. A slide in energy costs of 5.1% year-over-year further raises the possibility of a September rate cut by the ECB.
It further brought down the differential inflation rates for the German regions: North Rhine-Westphalia to 1.7% from 2.3% in July; Saxony to 2.6% from 3.1%; Brandenburg reduced to 1.7% from 2.6%; Baden-Württemberg to 1.5% from 2.1%, while Hesse also went to 1.5% from 1.8%.
Preliminary final figures from Destatis forecasted that the economy of Germany contracted 0.1% in the second quarter of 2024. Growth in the first quarter was at a mere 0.2%, which had sparked discussions of a possible recession unless things got better. Household spending, which had earlier risen, was down 0.2% in the latter half of the year. Meanwhile, government spending was up 1%. Foreign trade weakened further, with exports shrinking 0.2%.
The Commission still projects that the economy will not grow in 2024, as investment remains below its pre-pandemic level in view of high borrowing costs. The partial recovery in domestic demand would therefore be based on real wage growth.
Ahead, euro area inflation is due Friday to provide indications on the likely change in interest rates by the European Central Bank. The rate of euro area inflation probably decelerated to 2.2% this August from the previous month's 2.6%, economists say. Final August inflation figures for Germany will be released September 10.
