By Maria Martinez
BERLIN, Aug 31 (Reuters) – German inflation rose in August on higher energy prices due to the Iran conflict, but the increase was less than expected and core inflation stabilised, easing concerns that price pressures from the war could spread more widely through the economy.
Inflation rose to 2.9% year-on-year from 2.8% the month before, preliminary data from the federal statistics office showed on Monday.
Analysts polled by Reuters had forecast the EU-harmonised consumer price index to come in at 3.1% in August.
Energy inflation drove the increase, rising to 10.5% in August from 8.3% in the previous month.
The war in Iran has pushed up energy and raw material prices in previous months, and the German government now expects inflation to accelerate to 2.7% this year and 2.8% in 2027.
Commerzbank senior economist Ralph Solveen expects no further escalation in the Gulf region and that, as a result, energy prices will fall slightly.
“However, due to ongoing uncertainty, prices will remain significantly above pre-Iran war levels,” he added.
CORE INFLATION STABILISES
Core inflation, which excludes volatile food and energy prices, remained unchanged from the previous month at 2.4%.
“From the European Central Bank’s perspective, this level is still too high and is unlikely to decline in the near term,” said Solveen.
The German data comes ahead of the euro zone inflation release on Tuesday.
Inflation in the bloc is expected to come in at 3.3% in August, up from 2.9% in the previous month, according to economists polled by Reuters.
ECB policymakers are ready to raise interest rates at their next meeting in September to contain the side effects of the Iran war, but they have little appetite to signal further tightening after that, sources told Reuters.
“Whether further rate hikes will be necessary beyond that will likely depend primarily on whether the high prices in the energy sector ultimately produce noticeable spillover effects,” said Elmar Voelker, analyst at LBBW.
Services inflation fell to 2.8%, from 2.9% in the previous month, easing for the second consecutive month.
“So far, there are no signs that higher energy prices have spilled over into stronger price dynamics in other categories,” said Dirk Schumacher, chief economist at KfW.
INFLATION SEEN CLIMBING ABOVE 3%
“The bad news is that a rapid easing of the situation is not in sight, meaning that inflation could climb above 3% again in the fall,” said Voelker.
Carsten Brzeski, global head of macro at ING, agreed that headline inflation would rise above 3% and could stay there at least until year-end.
“Together with some knock-on effects from higher energy prices on transportation costs, as well as the inflationary impact of the drought on food prices and other industrial products, it could now take until the end of 2027 before headline inflation drops below 2% again,” Brzeski said.
(Reporting by Miranda Murray, Editing by Friederike Heine, Ludwig Burger and Alex Richardson)
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