Inflation in Germany, Spain eases on lower energy prices

Inflation slowed in Germany and Spain in March as energy prices fell, official data showed Thursday, adding to hopes that the eurozone was past the worst of the price increases.

In Germany, Europe’s biggest economy, price growth eased to 7.4 percent year-on-year in March, according to preliminary data from federal statistics agency Destatis.

In January and February, Germany’s inflation rate had held steady at 8.7 percent.

While food prices continued to show “above-average growth” this month, the increase in energy prices had “slowed considerably” compared with March 2022, when Russia’s invasion of Ukraine sent energy costs surging, Destatis said.

Analysts surveyed by financial data firm FactSet had expected a bigger drop in inflation, at 7.3 percent.

Falling gas and electricity prices had an even stronger impact on Spanish inflation in March.

Headline inflation in the country slowed sharply to 3.3 percent year-on-year, from six percent in February, according to preliminary data from national statistics office INE.

The latest figures showed that “the pass-through of higher energy prices into higher consumer prices is starting to lose strength,” said ING economist Wouter Thierie.

“Moreover, pressures on global supply chains have further eased in recent months to pre-pandemic levels, which is also dampening inflation.”

With inflation across the eurozone still well above the European Central Bank’s two-percent target, the bank is expected to keep raising interest rates.

The size of the ECB’s next rate hike remains unclear, however, especially after recent turmoil in the banking sector highlighted the pain of higher borrowing costs on the economy.

Following this month’s hike by half a percentage point, many observers see the ECB downshifting and opting for a smaller rate rise at the next meeting in May.

“In the coming months, the inflation rate is likely to ease somewhat due to the effect of energy prices, but the price pressure on non-energy goods will probably persist,” said LBBW economist Jean-Oliver Niklasch.

For Germany’s inflation rate, “we hope that by the end of the year there will be at most a three in front of the decimal point,” he added.

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