Germany's inflation rate slowed more than expected in October, falling to 2.8% year-on-year from 3.3% in September, as lower fuel prices following a government tax reduction helped ease pressure on consumers. Preliminary data released by Germany's Federal Statistical Office on Friday showed that inflation also came in below economists' expectations of 3.1%.
Energy price growth slowed to 12.2% in October, compared with 14.9% a month earlier. Core inflation, which excludes volatile food and energy prices, also declined, reaching 2.1% from 2.4% in September. The figures indicate that price pressures eased during the month, although energy costs continued to rise at a relatively high annual rate.
The improvement was partly supported by a fuel tax reduction introduced at the beginning of October. The measure, which is scheduled to remain in place until the end of the year, has contributed to a modest decline in fuel prices and provided some relief for households and businesses facing elevated energy costs.
Germany's inflation figures arrive ahead of the eurozone's October inflation update, scheduled for Wednesday. Economists expect inflation across the currency bloc to increase slightly to 3.9%, compared with 3.8% in September. The upcoming data will provide a broader indication of whether inflationary pressures are strengthening across the eurozone, particularly as energy prices remain a major concern.
The European Central Bank left interest rates unchanged at its latest meeting on Thursday but signalled the possibility of another increase in December. The central bank warned that high and rising energy costs were adding to inflation risks, keeping the outlook for monetary policy uncertain.
Germany's lower-than-expected inflation reading could offer some relief, but it does not necessarily change the broader challenges facing the ECB. Policymakers must balance easing underlying price pressures in Europe's largest economy against the risk that rising energy costs could push inflation higher across the region.
Investors will now focus on the eurozone inflation release and further signals from the ECB ahead of its December meeting. The direction of energy prices and whether inflation continues to accelerate across the currency bloc could prove decisive for the central bank's next interest-rate decision.
