German inflation slows, bolstering ECB case for surge to ease

[FRANKFURT] German inflation slowed from its highest level in decades, supporting the European Central Bank's (ECB) view that record consumer-price growth in the euro area will ease without the need for interest rate increases.

Prices in December rose 5.7 per cent from a year ago under a European Union-harmonised measure, down from the previous month's 6 per cent advance, data released Thursday (Jan 6) showed. Economists surveyed by Bloomberg had predicted a rate of 5.6 per cent.

The reading adds to signs that price pressures in the currency bloc are abating following a surge driven by supply-chain disruptions and a spike in energy costs. Bank of France governor Francois Villeroy de Galhau said this week that inflation is close to its peak after a report showed consumer prices in Europe's second-largest economy stabilising.

While Spain and Italy both saw inflation quicken last month, euro-region data due on Friday are set to show a slight deceleration, to 4.8 per cent, according to economists surveyed by Bloomberg.

The recent slowdown in Germany was driven by an easing of energy costs. At the same time, food prices rose at a faster clip.

But even as inflation slows, it is likely to stay above 2 per cent till 2024, the Bundesbank forecast last month. Price growth is expected to ease further at the start of this year as a temporary sales-tax cut in the second half of 2020 leaves the comparison base, though the effect on inflation of the coronavirus' Omicron strain is unclear.

BLOOMBERG