Germany’s inflation rate has fallen to a four-month low of 2.3% in March, according to preliminary data released Monday by Destatis, the country’s federal statistics office. The result was below both February’s 2.6% reading and the 2.4% forecast by economists surveyed by Reuters.
The data, harmonised across the euro area for comparison, showed price pressures easing across several key categories. Core inflation—excluding food and energy—fell to 2.5% from 2.7%. Services inflation, which has proven resilient in recent months, also declined to 3.4%, down from 3.8% in February.
On a monthly basis, harmonised consumer prices rose 0.4%.
The latest figures come ahead of the European Central Bank’s next interest rate decision on 17 April, with markets pricing in a roughly 91% chance of a 25-basis-point cut. If confirmed, it would mark the ECB’s sixth consecutive rate cut and lower the deposit rate to 2.25%.
The eurozone’s broader inflation data is due on Tuesday, with economists expecting headline inflation to ease to 2.2%, from 2.3% in February. Early readings from France and Spain point in that direction. Spain’s inflation dropped sharply to 2.2%, while French inflation remained flat at 0.9%.
Franziska Palmas, senior Europe economist at Capital Economics, said the fall in Germany’s services inflation “should more than offset” slight increases elsewhere, such as France and Italy. “This increases the likelihood that the ECB cuts rates again in April, in line with our forecast, rather than pausing,” she said.
ING economist Carsten Brzeski noted that while short-term inflationary pressures could emerge if Europe retaliates against potential US tariffs, weakening economic growth and rising inventories could have a disinflationary effect over time.
Germany’s economy is facing added uncertainty from looming US trade tariffs, including proposed 25% duties on imported cars—a sector that underpins much of the country’s industrial base. The impact of such measures on inflation remains unclear, but economists say prolonged trade tensions could shift the inflationary balance in the medium term.
At the same time, Germany’s political landscape remains unsettled following the February 2025 federal election. Coalition talks between the Christian Democratic Union, Christian Social Union, and Social Democratic Union are ongoing. However, lawmakers earlier this month approved a significant fiscal package that includes a €500bn infrastructure fund and revised debt rules to permit higher defence spending.
Despite the policy shift, Commerzbank economist Ralph Solveen said the recent easing in services inflation likely reflects weak economic momentum rather than slowing wage growth. “It seems that companies are finding it increasingly difficult to pass these higher costs on to their customers,” he said.
Germany’s HICP figure for March was the lowest since September 2024, and marks a sharp turnaround from the higher inflationary environment that dominated much of the past two years.
European equity markets, however, remained under pressure ahead of expected US tariff announcements on 2 April. Germany’s DAX fell 1.5%, while the Euro STOXX 50 dropped 2.3%, weighed down by losses in banks and automakers. Volkswagen, BMW and Mercedes-Benz all posted declines of more than 3%.
