Germany’s inflation rate climbed higher than anticipated in December, marking a resurgence in consumer price growth towards the end of 2024, according to preliminary data released on Monday by the federal statistics agency, Destatis.
The annual inflation rate for Europe’s largest economy reached 2.6 percent last month, surpassing both November’s figure of 2.2 percent and the 2.4 percent predicted by analysts surveyed by FactSet.
This marks the third consecutive month of rising inflation, reversing a dip earlier in the year when the rate fell below the European Central Bank’s (ECB) 2-percent target.
The uptick was largely attributed to “less favourable” base effects tied to energy prices, as noted by ING bank analyst Carsten Brzeski.
However, Brzeski warned that rising wages and residual energy-price effects could prolong elevated inflation levels into the new year.
With the German economy on track to log another recessionary year in 2024, the combination of slowing growth and rising prices has sparked fears of stagflation—where stagnant economic output coincides with high inflation.
Despite December’s unexpected surge, inflation remains far below the peaks observed in late 2022 when factors such as the Ukraine war and post-pandemic recovery drove prices sky-high.
The ECB, which began cutting interest rates last year after a series of aggressive hikes to curb inflation, is likely to proceed cautiously.
Policymakers at the bank’s December meeting expressed optimism that inflation would gradually align with its target in the coming months.
“While the current inflationary pressures are expected to subside over the year, the ECB will likely tolerate this short-term resurgence without deviating from its easing trajectory,” Brzeski concluded.
As Germany grapples with these inflationary dynamics, the focus remains on balancing monetary policy and economic recovery in the face of evolving challenges.