German inflation confirmed at 29-month low in November

The final estimate of Germany's consumer price index (CPI) confirmed that inflation fell to its lowest in 29 months in November.

In line with the provisional estimates released last week, CPI rose by 3.2% year-on-year last month, down from 3.8% in October, after prices fell by 0.4% during the month, according to Germany's federal statistics office, Destatis.

This was the fifth consecutive month of falling annual inflation, with falling energy prices accounting for a large part of the slowdown, while price pressures on food have also eased.

Energy prices were down 4.5% year-on-year, after a 3.2% annual decline the month before, which mainly reflect elevated prices in 2022 on the back of Russia's invasion of Ukraine. Food inflation meanwhile eased to 5.5% from 6.1%.

The core reading, which excludes the more volatile food and energy costs, stood at +3.8% in November, falling below the 4% mark for the first time since August 2022. Core inflation stood at 4.2% in October.

Meanwhile, the so-called 'harmonised' CPI reading – which uses the same methodology as other countries in the European Union so that data can be compared accurately – fell to 2.3% from 3% the month before and in line with the initial estimate.

"Inflation in Germany fell sharply midway through Q4, but it will snap back in December due to base effects in energy," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics.

"Looking ahead, base effects are significant for the December report. Gas prices crashed by nearly 40% on the month in December last year, due to a one-off fiscal support measure. That won’t be repeated this year, so inflation in gas prices are on track to hit anywhere from 30-to-35% this month, judging by the trend in the month-to-month numbers. That alone would be enough to lift headline inflation by around 0.5pp, holding all other things equal," Vistesen said.

Core inflation, however, should fall further in December to 3.6%, Pantheon predicts.