German inflation falls more sharply than expected

Inflation in Germany fell more sharply than expected last month, offering hope that the worst of the crisis may be over in Europe’s biggest economy.

The figure of 9.6 per cent for December was down from 11.3 per cent in November and much lower than the 10.7 per cent forecast by experts.

European stock markets rose and the euro fell against the dollar on the prospect that it could ease the path of interest rates.

Positive signs: Germany’s inflation figure of 9.6% for December was down from 11.3% in November and much lower than the 10.7% forecast by experts

However, hopes of any immediate change of tack were dampened by comments from European Central Bank (ECB) rate-setter Martins Kazaks.

He said he expected further significant interest rate increases over the next couple of months. 

Yesterday’s figures, however, represented the first time that German inflation has dipped below 10 per cent since August. 

It climbed as high as 11.6 per cent in October as the war in Ukraine pushed up food and energy costs. 

The energy spike has eased and a one-off payment by the government to help consumers cope with bills also had an impact on December’s figure.

However, energy prices last month were still 24.4 per cent higher than a year earlier, while food was up 20.7 per cent, according to the data from Germany’s statistics office.

The better-than-expected headline figure comes after recent data from Spain also showed a slowdown in inflation.

But economists pointed to the continued strength of ‘core’ inflation – which strips out volatile factors such as food and energy – in both countries.