Germany's Inflation Stays Unchanged at 2.8% in January Ahead of Upcoming Elections

The German inflation rate remained unchanged year-on-year at 2.8% in January, as indicated by preliminary data from the country's statistics office, Destatis. This figure was in line with economists' forecasts and marks the fourth consecutive month that the inflation rate has stayed above the European Central Bank's target of 2%. Notably, this comes after the rate fell below that threshold in September of the previous year. Additionally, Germany's harmonized consumer price index experienced a monthly decline of 0.2%. In another development, German core inflation, which excludes food and energy prices, decreased to 2.9% in January from the previous month's 3.3%%.

Impact on the Economy

Economist Sebastian Becker from Deutsche Bank Research attributed the disinflationary effect to Germany's weak economy, which experienced a contraction of 0.2% in the fourth quarter of last year, exceeding expectations. This trend suggests a further decline in the services and core inflation rates as the year progresses. The European Central Bank is expected to adhere to its monetary policy easing course, according to Becker.

The January inflation figures hold significant importance as they are among the last key economic data released before the elections in Germany on February 23, which were rescheduled due to the collapse of the ruling coalition in November 2024.

Government Response

In light of the persistent inflation and economic challenges, the government recently revised its gross domestic product expectations for full-year 2025 down to 0.3%, following a contraction in annual GDP over the last two years. Despite the sluggish quarterly growth, the economy has managed to avoid a technical recession characterized by two consecutive quarters of contraction. Furthermore, non-harmonized inflation is projected to average 2.2% this year, as stated in the government's annual economic report.