Two German flags fly in front of the environment and above the Parliament building at sunset.
Photo by Hannes P Albert/Picture Alliance
German consumer inflation has eased slightly from the March level at 2.2% per year in April, but surpassed expectations, preliminary data showed on Wednesday.
Economists voted by Reuters estimated a 2.1% reading. The country’s consumer price index, which has become comparable across the Eurozone, reached 2.3% per year in March.
The so-called core inflation, which excludes food and energy prices, accelerated from 2.6% in March to 2.9% in April. The closely viewed service print also jumped to 3.9% after reading 3.5% the previous month.
Meanwhile, energy prices fell sharply, falling 5.4% according to the Bureau of Statistics.
The European Central Bank’s 2% mark inflation rate is good news for consumers at first glance, but Deutsche Bank economist Sebastian Becker said on Wednesday.
The slight decline in the headline numbers only happened due to lower energy and food costs, he said. “In comparison, the core inflation rate, which is more important to the ECB, is especially rising again,” and service inflation appears to be “a lot more stubborn than expected,” Becker added.
Economic Growth
Earlier on Wednesday, preliminary data showed Germany’s economy had grown by 0.2% in the first quarter from the previous three months period.
The figures, released by the German Federal Statistics Office, are adjusted to suit prices, calendars and seasonal variations.
The GDP reading was consistent with estimates from economists voted by Reuters. Germany’s total domestic value was signed 0.2% in the fourth quarter.
The Bureau of Statistics believes that the quarterly increase is due to the fact that “both household final consumption expenditures and capital formation are higher than in the previous quarter.”
While acknowledging Wednesday’s figures were positive, “The quarterly increase is still too small to end the country’s long-term stagnation,” said Karsten Bruzesky, global head of ING’s macros, in a memo.
Europe’s biggest economy has long been slow, with a GDP flip-flop between growth and contraction in each quarter from 2023 to 2024, and the country has so far avoided a technical recession defined by two consecutive contractions.
Major sectors of the economy, such as automobiles, are struggling with stronger competition with China. Other industries, including home construction and infrastructure, have experienced challenges associated with higher costs, calm investments and bureaucratic hurdles.
Separately, US President Donald Trump’s tariff policy drives uncertainty towards Germany, which has been exported to Germany, which counts the United States as its most important trading partner.
As part of the European Union, Germany faces 20% blanket tariffs on goods exported to the US, but these taxes have temporarily dropped to 10% to make sure they have time to negotiate. The US duties in steel, aluminum and automobiles also affect the country.
The German government cut its economic outlook last week to predict stagnation in 2025. This was Economy Minister Robert Habeck, who has announced that Trump’s trade policy and national impact is a major factor in the revision.
Finance changes
One bright spot can appear on the horizon. Earlier this year, Germany made changes to its long-standing debt brake fiscal rules, allowing for increased defence spending and creating a 500 billion euro ($570 billion) fund dedicated to infrastructure and climate investments.
This movement has been widely seen as a positive change in the German economy, but it still relies on how the change is implemented.
“Today’s GDP report illustrates what could have happened if President Donald Trump hadn’t had a tariff explosion. This is an economy that runs out of shortage and undergoes weak, periodic rebounds, but the announced fiscal stimulus package could gain momentum.”
This recovery could still occur, but the process will likely take time, analysts said. He stressed that tariffs, uncertainty and other changes in trade and geopolitics have been overwhelmed by the short-term economic outlook, but planned fiscal measures could drive long-term growth.
