German Inflation falls to lowest since Feb 2021

German Inflation: German inflation stands at its lowest since February 2021, preliminary data revealed on Tuesday, firing speculation the European Central Bank is preparing an interest rate cut next month.

Inflation in Germany eased to 1.8 per cent in September, which was below the analysts' expectations of 1.9 per cent. That was lower than a year-over-year increase of 2.0 per cent seen in August. Data harmonised for comparison with the rest of European Union countries shows a dramatic shift in the economic landscape, which the federal statistics office reported.

At the same time, core inflation-the gauge of prices excluding volatile food and energy-used to calculate the inflation rate excluding recent increases due to food and energy-price volatility-also fell to 2.7 per cent in September from 2.8 per cent a month earlier. The decreases for both headline and core inflation could therefore ease some of the pressure on ECB policymakers to tighten monetary policy.

Economists are carefully eyeing Germany inflation data, which is released one day before the overall euro zone ones. In a poll by Reuters, euro zone inflation has likely fallen to 1.9 per cent in September from 2.2 per cent that had been noted in August. In the meantime, other major eurozone economies, such as Spain and France, have already experienced easing inflation rates.

The ECB had been expecting an already lower reading in September. But officials cautioned that if inflation breaks out in coming months then the scenario would worsen and complicate the economic outlook for further measures. Thus, the latest inflation data could fortify the argument in favor of a rate cut as policymakers seek to buttress economic growth in the face of shifting inflationary pressures.

Investors and analysts will be watching the upcoming eurozone inflation data closely, hoping for more clues on the economic health of the region and possible future monetary policy adjustments of the ECB.