German inflation stays unchanged at hotter-than-expected 2.8% in February

German annual inflation came in at an unchanged but higher-than-expected 2.8% in February, provisional data from statistics agency Destatis showed Friday.

The print is harmonized across the euro area for comparability. 

The February print compares to a 2.7% estimate from economists surveyed by Reuters. The January harmonized annual inflation reading had also come in at 2.8%, which was already unchanged from December.

On a monthly basis, harmonized inflation rose 0.6%, according to the preliminary data from Destatis.

So-called core inflation, which strips out food and energy costs, came in at 2.6%, down from the 2.9% reading of January.

Deutsche Bank Research economist Sebastian Becker on Friday described the lower core inflation reading as positive and noted that the print is expected to keep falling as wage growth eases and the broader economy remains muted.

The closely watched services inflation print also eased, coming in at 3.8% in February, after hitting 4% in the previous month.

Despite the decline, the services reading was a “drop of bitterness” in the Friday data, as the fall was smaller than anticipated, Becker said according to a CNBC translation.

German inflation had fallen below the 2% European Central Bank target in September last year, but re-accelerated after and has remained above the crucial mark for five months in a row now.

The German data arrives ahead of the consumer price index print for the euro zone on Monday and the latest ECB decision later next week. The central bank in January cut interest rates for the fifth time since starting to ease monetary policy last summer and markets are widely pricing in another trim on Thursday.

Inflation data from Germany, as well as other euro zone countries, likely “cemented” chances of a 25-basis-point reduction from the ECB next week, Carsten Brzeski, global head of macro at ING, said in a note Friday.

“The main question, however, will be what’s next for the ECB,” he said, noting that some members of the policymakers have started to resist further rate cuts. All eyes will be on the wording of the post-announcement statement, specifically whether the ECB chooses to drop or adjust the “restrictive” label from its description of monetary policy, Brzeski explained.

The Friday figures are also some of the first key economic data points to be released since the German election last weekend, in which the conservative alliance between the Christian Democratic Union and the Christian Social Union secured the largest share of votes.

This puts their lead candidate Friedrich Merz in line to take over from Olaf Scholz as chancellor, although it appears likely that the CDU-CSU will form a governing coalition with Scholz’s Social Democratic Party.

Economics was a hot topic during campaigning, with Merz suggesting that his policy plans — including income and corporate tax cuts, less bureaucracy, changes to social benefits and deregulation — would give the country’s economy a needed boost. Germany’s gross domestic product has long been hovering around recession territory, and shrank 0.2% after price, seasonal and calendar adjustments in the last quarter of 2024 from the previous three months, according to Destatis.