Prime Highlights:
Core inflation, excluding food and energy, dropped to 2.6%, down from 2.9% in January.
Services inflation eased slightly to 3.8%, down from 4% in January, but the decline was smaller than expected.
Key Background:
German inflation remained unchanged at 2.8% in February, according to provisional data from the Federal Statistics Office (Destatis), published on February 28, 2025. This figure was higher than the 2.7% forecast by economists and mirrored the inflation rate from January, indicating persistent price pressures in Europe’s largest economy.
Although inflation had briefly fallen below the European Central Bank’s (ECB) target of 2% in September 2024, it has since re-accelerated. Monthly harmonized inflation increased by 0.6% in February, and core inflation, which excludes food and energy prices, eased to 2.6% from January’s 2.9%.
The services inflation rate showed a modest decline, dropping to 3.8% from 4% in January, but this decrease was smaller than expected. Deutsche Bank economist Sebastian Becker viewed the easing of core inflation as positive, suggesting it would continue to decline as wage growth slows and economic conditions remain subdued.
The February inflation data arrives just ahead of the euro zone’s consumer price index report and a crucial ECB meeting scheduled for next week. Following multiple rate cuts since mid-2024, markets are pricing in another interest rate reduction. The data is expected to influence the ECB’s policy decision, with some market analysts predicting further easing despite internal resistance among certain ECB members.
The release also comes on the heels of Germany’s recent election, where the conservative CDU/CSU alliance gained the largest share of votes, positioning Friedrich Merz to potentially succeed Olaf Scholz as Chancellor. Economic policy, including tax cuts and deregulation, was a major issue in the campaign, as Germany’s economy faces ongoing stagnation.
