Germany's CPI rose by 2.3% year-on-year in November, below expectations, while the preliminary harmonized CPI unexpectedly climbed to 2.6%, reaching a nine-month high.

Germany’s harmonized inflation rate unexpectedly rose to 2.6% in November, reaching a nine-month high. Although ECB policymakers have recently expressed satisfaction with the inflation outlook, the latest data indicate that price stability risks have not disappeared.

On November 28, data released by the German Federal Statistical Office showed that the harmonized consumer price index (CPI) rose by 2.6% year-on-year in November, higher than the previous month’s 2.3% and above analysts’ expectations of 2.4%. The main drivers of this round of inflation were increases in package holidays (bundled travel products including transportation, accommodation, and attractions) and fuel costs.

At the same time, Germany’s preliminary national CPI for November rose by 2.3% year-on-year, unchanged from the previous period and slightly below the market expectation of 2.4%.

Inflation Rebounds Unexpectedly, Central Bank Officials Remain Cautiously Optimistic

The rebound in German inflation was mainly driven by higher package holiday and fuel costs, while food prices provided a moderate drag. Bloomberg economist Martin Ademmer pointed out that despite short-term volatility, the broader trend still points to a steady slowdown in inflation. It is expected that Germany’s inflation rate will fall back to 2.3% in 2025 and remain below 2% throughout 2026.

Inflation trends within the euro area show clear divergence. Price pressures in France and Italy are below expectations, while Spain has shown relative strength. The market generally expects that the upcoming overall euro area inflation rate will remain near the 2% target level.

In view of the current situation, ECB policymakers have taken a relatively dovish stance. Chief economist Philip Lane said on Wednesday that the gradual slowdown in wage growth will help inflation sustainably return to target levels, suggesting the central bank will leave current borrowing costs unchanged in the near term.

However, risk factors remain noteworthy. Service and food costs continue to rise rapidly, and the latest ECB survey shows that consumers’ inflation expectations for the next 12 months have risen from 2.7% in September to 2.8% in October. Although medium- and long-term expectations remain stable, they are still consistently above the central bank’s target level, adding uncertainty to the monetary policy outlook.

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