German inflation rises more than expected in Dec on higher food prices

German annual inflation rose more than forecast in December due to higher food prices and a smaller drop in energy prices than in previous months, preliminary data from the federal statistics office showed on Monday. 

The annual consumer price inflation rate rose to 2.9 per cent, higher than the 2.6 per cent forecast by analysts polled by Reuters and speeding up from 2.4 per cent in November, based on data harmonised to compare with other European Union countries. 

"Last year ended with unpleasant news on the inflation front," said Joerg Kraemer, chief economist at Commerzbank, noting that the inflation problem has not been solved. 

He added that inflation is likely to be similarly high in January due to higher prices for CO2 emissions and insurance services.

"The summer celebrations over successfully conquering the inflation monster were premature," said Carsten Brzeski, global head of macro at ING, adding that the latest reading brought back "the spectre of stagflation to the (European Central Bank)." 

Economists pay close attention to national inflation data, as Germany publishes its figures one day before the euro zone inflation data release. 

This week's inflation data will be the last before the ECB's next meeting on Jan. 30. 

Euro zone inflation is expected to have risen to 2.4 per cent in December from 2.2 per cent in November. 

According to Brzeski, as long as the current inflationary pressure is anticipated to diminish over the course of 2025, the ECB is likely to overlook the present inflation resurgence. 

The ECB expects inflation to settle at its 2 per cent target this year after hitting double digits in the wake of Russia's full-scale invasion of Ukraine in 2022. 

"The ECB's target will be missed by a wide margin," said Ralf Umlauf, senior economist at Helaba, in response to the German figure. "Expectations of ECB interest rate cuts should not be given any new impetus." 

The annual average inflation rate in Germany is expected to stand at 2.2 per cent in 2024, the statistics office said, well down from 5.9 per cent the previous year. 

Core inflation, which excludes volatile food and energy prices, went up to 3.1 per cent from 3.0 per cent in November. 

Energy prices fell by 1.7 per cent compared with the previous year, while food prices rose by 2.0 per cent year-on-year in December, data from the statistics office showed. 

Services inflation inched up to 4.1 per cent in December from 4.0 per cent in the two previous months. 

"ECB officials will be disappointed about the uptick in services inflation," said Franziska Palmas, senior Europe economist at Capital Economics. 

She added that she still thinks it is most likely that headline and core inflation will fall in 2025, with the headline rate likely to drop below the 2 per cent target.   

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